The Most Powerful Force In the Universe

Albert Einstein, famous for being one of the sharper tools in humanity's shed, was once asked what the most powerful force in the universe was.  He replied, "Compound interest."  He had a point.  Compounding is without a doubt a critical ally in the never-ending fight to ensure your retirement runs out before your money does.  But exactly how powerful is it?  And how fast can compounding grow your nest egg?  There's a quick and simple thumbrule to figure it out: the Rule of 72.

It works like this.  Just divide your interest rate (or growth rate, whatever you have that’s compounding) into 72, and the answer is the number of years it will take for your money to double.  Simple.  So if you have an 8% rate, your money will double in about 9 years.  At 3%, about 24 years.  It’s not exact, just a thumbrule.  The math falls apart at higher rates, but it’s fairly accurate at reasonable rates you might actually have.

Wikipedia has a pretty good explanation of the math that makes it work, here, and there’s also this video on Investopedia that explains it fairly well.  This shortcut has been around for centuries.  With a little luck and some really good planning, your savings can be, too.  Remember, it’s not timing the market that counts, but time IN the market.  Happy investing.