The Rule of 72

Everyone wants to double their money.  One of the first things most people think about when they think about investing their dollars is how soon their money will double.  I’m certainly not sure why that is. Why don’t we first think about quadrupling our money or making ten times our money?  Maybe one of the reasons is because we don’t have a rule-of-thumb tool like the Rule of 72.

The Rule of 72 is really straight-forward and easy to understand.  We refer to the Rule of 72 frequently when discussing projected outcomes of particular apartment investments with our investor-Partners and we use it as a back-of-the-napkin estimating tool when doing initial number-crunching.  Here’s a fun video that explains how it works in case you need a refresher:

Estimating how quickly you could double your money investing in commercial multifamily projects and comparing the outcome of this investment against other investing alternatives becomes quite easy to do with this rule.

Savings Accounts.  As of this writing, the approximate annual interest paid on savings accounts is 1.0%.  This interest rate makes using the Rule of 72 quite easy:  72 / 1 = 72 years to double your money.

The Stock Market.  The compound annual growth rate of the S&P from 1871 through 2014 is 6.91%.  Using our handy-dandy rule, we get:  72 / 6.91 = 10.4 years to double your money.

In the next post, we’ll examine how the Rule of 72 is applied to real estate and the apartment investing specifically.

 

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