The rule of 72 is a simple equation created by Albert Einstein. He said that compounding interest is the eighth wonder of the world.It is the most powerful math equation. It is one of the simplest tools to help you calculate the estimate of accumulating wealth for how long it will take for something to double.
Let’s say a bacteria replication, especially E.-coli If you study in biology or mico-biology class at high school or college in general education. You should have learned how bacteria and mold replicate itself to double. Technically bacterium is singular and it is multiplied to bacteria. For example, if you leave a bread or any food on a table overnight without refrigerating, it gets contaminated while you are asleep by flys or any biological vehicles that carry E.coli landing to it . you would see the discoloration spreading all over on the bread when you wake up. Mold is one of them. Have you ever wonder why this happens rapidly? Compounding. E-coli can replicate every 20mins, one becomes 2, 2 becomes 4, 4 becomes 8 and this creates the massive number of bacteria in the short amount of time. It repeats 72 times a day and the number of bacteria grow up to easily the number of billions. Then If you eat the food, you get sick… no doubt about that!!
What if, if I say your investment works exactly the same…wouldn’t that be exciting?You get RICH!!!Let me explain this. There are many different types of investment vehicles out there providing interest rates, CDs at a bank giving you less than 2%, the bond from the Department of Treasury gives you around 3%, an annuity can guarantee you to give 7% Mutual funds and stocks possibly give you above 12%. Some risk involves, and some don’t. How do these interest rates affect on your money?
Simply this is how it works!! The higher the interest rates, the more you can accumulate your money. The difference is significant. With 4% interest rate, keep the money in without touching until 65, you would get $40,000. On the other hand, with 12% rate, you would receive $640,000. Now you understand many of intelligent investors are rich. It doesn’t have to have degrees to understand this.
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The Rule of 72
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This was not invented by and possibly never mentioned by Einstein. There is no record of this. It was however recorded by Luca Pacioli 400 years before Einstein was born. He mentions the rule in his 1494 book Summa de arithmetica, geometria, proportioni et proportionalita (“Summary of Arithmetic, Geometry, Proportions, and Proportionality”).
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