Remember the rule of 72? You can use this rule-of-thumb to estimate how long it will take to double your money under various scenarios. To do this, you simply divide the annual rate of return into 72 to determine how many years it will take to double your money.
For example, if you assume an average 8% return on your Roth IRA, its value should double every nine years. (This doesn’t consider additional contributions, of course. And for a variety of reasons — particularly market fluctuations — it’s not a precise tool.)
You can run the numbers the other direction, too. What sort of annual return do you need in order to double your money every five years? 72 ÷ 5 = 14.4%.
JLP at All Financial Matters points out something obvious that had never occurred to me before: to estimate how long it will take for your money to quadruple, you can use the rule of 144. Less obvious is the rule of 114, which allows you to estimate the time needed to triple your money.
(And by extrapolation, then, we can devise a new “rule of 42″, which is the amount of time necessary for our money to increase 50%.)
I’ve never mentioned here that I’m a stats geek. It’s true. I love stuff like this.
[All Financial Matters: The rule of 72, 114, and 144]
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