I’m going to teach you a useful trick called the rule of 72.
Without a calculator, if you invest $100 for 40 years at a 10% interest rate, which of these is closer to how much money you’d end up with?
- $500
- $1,000
- $5,000
- $10,000
The answer is 3 – you’ll have made nearly 50x your investment (45.3x to be precise.) And furthermore, there’s an easy way to estimate this in your head: if you have an X% interest rate, then your investment will double approximately every 72/X years. So a 10% interest rate will double about every 7.2 years, while a 12% interest rate will double roughly every 6 years.
That means 40 years is 5–6 doublings at 10%, which gives you somewhere in between 32x and 64x your original investment.
...and that’s how people make money off of returns – a reasonable return, combined with a lot of time, is a pretty good vehicle for significantly increasing your wealth.
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