Get Rich Doing (Almost) Nothing via the Rule of 72
Time in the market beats timing the market – Ken Fisher
We’re in the midst of the greatest wealth transfer from one generation to the next in the history of humankind – from Boomers to Zoomers (& Gen X + Millennials in between). Estimates run to around $100T (yes, ‘T’ for TRILLIONS). Here’s a basic tool to preserve & multiply, as well as generate & build wealth from earnings & savings.
Bake Your Own Rich Cake Recipe
3 Ingredients – a coffee can, a ruler & some time…
1. The Coffee Can
A metaphorical container to stick in the cupboard after purchasing & putting the S&P500 Index inside it; set it ‘n forget it, then let it sit…
2. The Rule of 72
An approximate but accurate enough formula to calculate how long it'll take for an investment to double in value based on its rate of return.
Inversely, the Rule of 72 computes the annual rate of return from an investment once given how many years it will take to double that investment.
The Formula t = 72 ÷ r
- where t = time for investment to double in value
- & r = rate of return, expressed as a percentage
3. Time
Historical data proves the Power of Compounding using the Rule of 72. Over the last 100 years the U.S. stock market averaged ~10% per year. Plug 10% into the Rule of 72 Formula makes t = 7.2 years, rounded-off, give-or-take, to every 7 years for the investment to double.
Now past results do not guarantee future returns; and yet should the pattern hold, the projection looks like this:
- Year 0 = $100,000 starting capital
- Year 7 = 1st double -> $200,000
- Year 14 = 2nd dbl -> $400,000
- Year 21 = 3rd dbl -> $800,000
- Year 28 = 4th dbl, $1.6 Million
- Year 35 = 5th dbl, $3.2M
- Year 42 = 6th dbl, $6.4M
The Power of Compounding: set it ‘n forget… a 22-year old wakes up, Rip Van Winkle-style in 42 Years at age 64 with $6.4 Million. A no-worries-retirement.
Can’t wait that long? Accelerate the escape velocity of your money with the XLR8R Fund