Monday, December 10, 2007

How long does it take for my money to double?

In the investment world so many people wonder how long will it take to double their money at its current position. Well a lot of people never even heard of the rule I am about to explain. The rule is called the rule of 72 this is used to find how money you will in a certain time period. You use the rule of 72 by dividing 72 by the investment interest rate .Example of this would be if you had $10,000 in a mutual fund and the fund director said that fund a constant yield of 12% annual, now you would divide 72 by 12 and get 6 so if you bought that mutual fund it would take six years for your money to reach $20,000. I feel though this rule should be taught in elementary because it is a basic fundamental of investing ,so many adults have not heard of this rule.


Dave said...

Say your rate, r, is 12%. That's r = 0.12. The real formula is (1+r)^x = 2, where x is the number of years required to double your money. Another way to write that is log(base 1+r) of 2 = x. Since calculators don't usually have a way to calculating arbitrary-base logs, you can simulate log(base 1+r) of 2 by doing log(base 10) of 2/log(base 10) of (1+r) or ln(2)/ln(1+r).

number of years = ln(2)/ln(1+r)

ln(2)/ln(1.12) = 6.11. Your estimate with 72 is pretty accurate in many cases.

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