Check Out # 2

Have you ever heard of the “Rule of 72”?

When you want to know how a given amount of money grows for given amount of interest and for a fixed amount of time, then the Rule of 72 can be useful in providing you a good estimate of the effects of the growth of compound interest.  Most all investments (savings, CD's, stocks, mutual funds, bonds and even real estate) growth uses the process of compound interest.  Even mortgages are determined by compound interest.

Rule of 72   =   (72) / (Interest Rate in percent )
=   The # of Years for a fixed amount to Double.

For example, you have $1,000.00 and can get 6% annual interest rate.  You would like to know what it would be worth in 24 years.  The Rule of 72 = (72) / (6%) = 12 years.  Thus, the $1,000.00 will equal $2,000.00 in twelve years.  In another 12 years (for a total of 24 years), your $1000.00 will finally grow to $4,000.00.  In this case, the amount doubles every 12 years.

Another example, you have $1,000.00 and can get 12% annual interest rate.  You would like to know what it would be worth in the same 24 years.  The Rule of 72 = (72) / (12%) = 6 years.  So in 6 years, your $1,000.00 is worth $2,000.00.  In another 6 years (for a total of 12 years), your $1,000.00 will grow to $4,000.00.  In another 6 years (for a total of 18 years), your $1,000.00 will grow to $8,000.00.  In another 6 years (for a total of 24 years), your $1000.00 will finally grow to $16,000.00.  Again, the amount doubles every 6 years.

For a third example, you have $1,000.00 and can get 18% annual interest rate.  You would like to know what it would be worth in the same 24 years.  The Rule of 72 = (72) / (18%) = 4 years.  So in 4 years, your $1,000.00 is worth $2,000.00.  In another 4 years (for a total of 8 years), your $1,000.00 will grow to $4,000.00.  In another 4 years (for a total of 12 years), your $1,000.00 will grow to $8,000.00.  In another 4 years (for a total of 16 years), your $1000.00 will finally grow to $16,000.00.  In another 4 years (for a total of 20 years), your $1,000.00 will grow to $32,000.00.  In another 4 years (for a total of 24 years), your $1000.00 will finally grow to $64,000.00.  And again, in this case, the amount doubles every four years.

WOW!  This is getting to look very interesting.

Recognize that this is only a rule of estimation that yields a good approximate value.  However, the growth with different interest rates is generally a good example of the Growth effects for Compound Interest on a fixed amount of money.

Try to calculate the growth of a $1500.00 at 12% for different periods.  For example, calculate the growth for the periods of 18 years, 24 years, 30 years and 36 years.  Will the total amount at 30 years exceed $45,000.00?

If you invest monthly in good (highly diversified) mutual funds (say, $200.00 per month) at a fair return for your investment (say, 12 % annually and compounded monthly) for 35 years, then you will be a millionaire too!   The actual amount is $1,286,192.00.

YOU ARE NOW WORTH lots of   $$$$$!