Rule of 72

I have spent a little bit of time learning about investing in shares. I am certainly not someone who wants to day trade as for me the looks like a route to loosing money. mmm perhaps I should expand on my ideas about this one at some point. Share to me looks like a way of investing on the time scale of 10 to 15 years.

While reading about this topic I cam across "The rule of 72". It is an approximation that lets you estimate the number of years it will take to double your money for a given interest rate assuming you re-invest your returns during that period.

For example lets say you have an interest rate of 6%, to work out the time required to double your money is 72/6 or about 12 years. It is accurate enough to let you do back of the envelope calculations.

Another fun fact I read was if you invest a hundred dollars a month it will take you about 45 years to become a millionaire assuming a 10% compounded interest rate on the money. The fun thing is if you carry on investing $100 a month it will take another 7 years to get to 2 million and just over another 4 years to get to 3 million. This all ignores taxes...

A 10% growth on your investment is roughly the performance that low cost tracker funds give on average over a longish time period.

So the take away from the post is reasoning quickly about interest rates is pretty easy and if you can figure out how to make the first million then it is all gravy from there on, Investing small amounts each month is fine if your parents start for you when you are born.