rule of 72

Rule of 72: The Secret to Growing & Supercharging Your Money

rule of 72The secret to growing your money simplified is known as the Rule of 72. This Rule has had the greatest impact on me from an early age. I realized how money works and how it is grown and compounded.

This is the how the rule works, by dividing 72 by the annual percentage rate of return on your investment, the answer is an approximate of how long your money takes to double.

For example, $25,000 invested with the bank in a GIC at say 3%, it would take you whopping 24 years for your money to double to $50,000. Who wants to wait that long right?

However, $25,000 invested in a well-chosen investment vehicle such as Real Estate at say 12% (this is very much possible), it would take you only 6 years for your money to double to $50,000.

I was fortunate to learn this when I was about 20 years old. I searched for many years to find a high ROI investment vehicle which was sustainable and gave you predictable returns without much fluctuations.

Most of my money was first invested in Mutual Funds, which was giving me very low returns. Especially after the 2007 crash! I lost a big chunk of my savings. I then went on to trading stocks, ETF, and even Options. While I made some money, I lost money within a few month due to market fluctuations.

The safest and best investment vehicle I found was Real Estate. It does not have any wild market fluctuations, it is tangible and there is very little chance my capital will be lost there.

How the Rule of 72 Works

Rate of Return Rule of 72 Actual # of Years Difference (#) of Years
2% 36.0 35 1.0
3% 24.0 23.45 0.6
5% 14.4 14.21 0.2
7% 10.3 10.24 0.0
9% 8.0 8.04 0.0
12% 6.0 6.12 0.1
25% 2.9 3.11 0.2

 

So back to my explanation of the Rule of 72. This is where your investment gets supercharged.

  • In Year 1 = $25,000 – initial investment at 12% ROI
  • In Year 6 = $50,000 – you doubled your money. (1st doubling period)
  • By Year 12 = $100,000 – 2nd doubling period
  • By Year 18 = $200,000 – 3rd doubling period
  • Year 24 = $400,000 – 4th doubling period
  • Year 30 = $800,000 – 5th doubling period

Essentially, you turned your initial $25,000 into a whopping $800,000 in 30 years. I know 30 years seem like a long time, but also imagine if you invested more than $25,000, you would have over $1M Million dollars. With 3% Return, you only have 1 doubling period in 24 years which with 12% return, you would have 4 doubling periods. The higher ROI offers more doubling periods to supercharge your investment.

So until next time, happy Canadian Real Estate Investing.

Jose Jafferji, REIA

Your Real Estate Investment Advisor
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