Your friend and your foe
Here’s how it works:
Years to double = 72 / annual interest rate
Interest rate needed = 72 / years to double
Why is it your friend and foe?
How it works FOR you:
Helps you visualize, using a hypothetical growth rate, how long it will take your investments to double
How it works AGAINST you:
If you are carrying high-interest debt the Rule of 72 reveals how quickly your debt will double if not managed carefully
Example:
If you have an investment with a 5% IR% it will take 14.4 years to double in value.
If you have a credit card with a 22% IR% it will double roughly every 3.3 years.
Ultimately, the Rule of 72 is a useful benchmark to help guide your financial decisions and important to understand. Remember to consider all the factors in your planning. It is not just a tool to see the impact of compounding gains with investments, but also illustrate the impact of debt.
Disclosure:
Retirement Planning Solutions, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Retirement Planning Solutions, LLC by the SEC nor does it indicate that Retirement Planning Solutions, LLC has attained a particular level of skill or ability. This material prepared by Retirement Planning Solutions, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Retirement Planning Solutions, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Retirement Planning Solutions, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Retirement Planning Solutions, LLC is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.