Why bother to invest at all? The underlying answer that many of us have to that question, even if we don't say it, is: "That is too risky. I know people who have lost everything doing that. I'm not that dumb, I'll just save in a savings account."

So the first question is to ask yourself: "Do I know what the Rule Of 72 is?" and "How does it affect me, anyway?"

What Is The Rule Of 72?

The Rule Of 72 goes back at least many hundreds of years. It was referenced by Luca Pacioli, an Italian mathematician, sometime during the 15th century as a convenient way to determine how long it takes your money to double, assuming you know the interest rate it earns. Luca didn't explain the rule much, meaning it probably goes back even further than that, but the principle still holds true today.

Here's an example: start with any amount of money, let's say $100.00 to be simple. You invest it at 10%. Using the simplest of math, you take 72 and divide it by 10, and you get the number 7.2, which means your money will double to $200.00 in 7.2 years.

If you have $100.00 and you invest in at 7.2%, you take 72 and divide it by 7.2, and you get the number 10, which means your money will double to $200.00 in 10 years.

The same exact principle is true if you start with $100.00 or $100,000.00. That's all the harder it is.

Now, is it accurate? Well, not precisely. The Rule Of 72 is a good general estimation if you assume that your interest compounds once per year, when actually it might compound monthly or daily - but if it does, that's only to your benefit. There are financial calculators which are much more accurate, but this is a simple idea that gives you a good general working answer.

How Does It Affect Me, Anyway?

Let's assume you really are thinking like our hypothetical person at the start of this article, and you "know better" than to get into the stock market, so you just dump some money every month into a savings account. Don't get comfortable with the idea that you're better off than people who don't save at all - you are, but is it enough?

Let's see.

So you're in savings account which, in today's market, probably pays you somewhere between 0.2% if you're like most people and maybe 3%, if you've got a lot of assets and your mortgage there, too. If you're in the latter of those two groups and earning 3%, then we take 72 and divide it by 3, and we get....ouch, 24 years for your money to double.

If you're in the former group and earning 0.2%, well, you're looking at having your money still double all right, and in only 3,600 years! Cool, huh?

By the way, if you're a retired person, and you do have some assets saved up, but the market makes you nervous and so you only buy 3% CDs, you're looking at that same 24 years for doubling, IF you don't withdraw anything, and IF the inflation rate is zero. Even though that inflation rate is pretty close to the truth right now, it's nowhere close to normal, since the average inflation rate in the United States is around 3% for the last 200 years. That means a 3% return is roughly equal to no return at all, most of the time.

Be invested but don't take more risk than necessary, and hire a professional to help, and you just might avoid falling behind the curve and working a lot longer than you'd like to support yourself and your family.

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