The Rule of 72
If you don’t know about the Rule of 72, you should. It’s a very easy way to make sense of “rate of return” and how important it is.
For example, if your investments make 1% a year, then the rule says that it will take 72 years for your money to double. So if you invest $100,000 and you earn 1% a year (which is roughly the rate being paid in a savings account or a GIC these days), then it’ll take you 72 years before your $100,000 turns into $200,000. That is a really, really, really long time!
On the other hand, if you make 7.2% a year (so says the rule of 72), it only takes 10 years for your money to double. It only takes 10 years for your $100,000 to turn into $200,000.
Your rate of return really, really matters. It has serious implications for the rest of your life.
Of course, you don’t have to aim for 7.2%. This is just a mathematical concept. You can aim for more or you can aim for less depending on a lot of different factors. The key thing to remember is that your rate of return matters.
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