Rule of 72

This is interesting.

Say, if I have $100, and the saving account rate is 2%. Assuming compound interest, how long does it take to double the money?

An easy way to estimate that is to simply calculate: 72 / 2, which is 36. So it will take 36 years to double my money.

Really? Let’s see… 100 * (1+0.02)^(36) = 100 * 2.0398… = 203.98 !!! WTF !!!

How about SPY? Based on trailing 10-year data, the fund generated average annual returns of 11.04%. So how long does SPY take to double my money? 72 / 11 = 6.54.

OK, just 6 and a half year. That’s all it takes. =)

Now you know how to do these kinds of estimates.

The math behind this shortcut is actually quite simple: https://web.stanford.edu/class/ee204/TheRuleof72.html

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