Rule of 72 – the Power of Compounding

The Rule of 72 is to divide the number of 72 by the interest rate or the average earning rate and the answer will be how long it will take for your money to double. For example, a $10,000 investment paying at 9% (without reinvesting the interest) would double in 8 years (72 divide by 9 = 8, this is the number of years for your $10,000 to double to $20,000.

Principle to double from $10,000 to $20,000 @9% takes 8 years
Principle to double from $10,000 to $20,000 @12% takes 6 years

This Rule of 72 applies to long term investing which is where it will be leading us to discuss….. Mutual Fund Investing. Why Mutual Fund investment?? Because “Mutual Funds Offer Greater Affordability Than Individual Stocks”.

It is often easier to select an amount of money you are willing to invest and find a fund with that minimum investment amount than it is to find stocks that fit your budget. Many of the best-performing stocks and the biggest companies will have high per share prices. A stock price at $5.00 per share means your $5,000 investment will buy you 1,000 units . The same $5,000 in a $0.50 NAV (net asset value) will buy you 10,000 units and the stock you wanted that was priced so high may be one of the stocks in the fund. Additionally, you will own hundreds of stocks for the same investment. So not only greater affordability but also diversification.