Have you ever wondered how long it takes for money to double? Well, wonder no more, because I’m about to give you a simple way to figure out one of the most complicated kinds of interest - compound interest.

There’s this little trick called The Rule of 72. Essentially, you start out with 72, then divide it by your interest rate, and that’s about how many years it will take for compound interest to double your money. This rule can work against you (as in a loan), or it can work for you (as in a mutual fund or other investment) - and in big ways too.

So, at 4% it would take 18 years for money to double (72 / 4). 6% would be 12 years. 8% would obviously take half the time of 4%, so that’s 9 years. Lastly 12% would obviously be half the time of 6% and would double every 6 years. Of course you’re going to go straight for 12% in an investment, but what if you get stuck with it in a loan? 12% is a very special rate - let me show you why.

Let’s say we start off with $2,000. Here we have the beginnings of our table, with the first doubling cycle already filled in.

Obviously 6% will double again at the 24 year mark, and 8% will double
again at the 18 year mark (becoming twice as much as 4% in the same
time period), like so:

And 12% - well you would expect it to be twice as much as what 6% becomes at the 24 year mark, right? Not exactly.

Logically 12% should double at twice the rate of 6%, just like 8% does with 4% - but as I mentioned before, 12% is special. Not only does it double your money three times faster, but it’s also a pretty average rate of return on investments in the world market - wink wink.

While this may be news to you, your credit card company, your mortgage company, your bank, and your insurance companies already use 12% to their advantage - and against you, whenever you take out a loan. Also, what do you think they do with the money you give them? They invest it in the world market, of course!

Come on back tomorrow and I’ll tell you all about it.