72 - the magic number
As an investor, 72 is one of my favorite numbers. It just makes everything easier.
If you are an investor or are thinking about starting investing, you should have this number tattooed in your brain.
When I was in business school, one of my favorite professors explained everything in such a way that he made complex concepts appear very simple and gave us #lifehacks in order to easily remember and make quick (right) decisions.
When investing, borrowing, or lending money, most of the time we have to compare rates of return and interest rates. And as a dreamy investor, I always think about doubling my money using compound interest.
So when analyzing an investment or a loan, when you have determined an internal rate of return (IRR) or an interest rate, always divide 72 by that rate. The result = number of periods that it will take to double your money or make a 100% return on it by reinvesting the dividends and applying compound interest.
For example:
- If a rental property gives you a 9 % annual rate, then:
9% annual rate = 8 years. (72 / 9 = 8)
- If you lend money at a 2% monthly rate, then:
2% monthly rate = 36 months (72 / 2 = 36)
I hope you find this rule as useful as I have.
Happy Ventures!
