Many people want to know how long it will take their portfolio to reach a certain monetary level. Here is a technique for calculating this. To estimate the number of years it takes to double the size of your portfolio, simply divide the annual rate of return into 72.
Example 1: If your current portfolio value is $100,000 and your rate of return is 6 percent, it will take 12 years for your account to grow to $200,000. (Solution: 72 divided by 6 equals 12 years).
Example 2: If your current portfolio value is $100,000 and your rate of return is 12 percent, it will take 6 years for your account to grow to $200,000. (Solution: 72 divided by .12 equals 6 years). In another 6 years if will double to $400,000.
This “Rule of 72” will give you a good estimate of the actual investment returns, based on the interest rate assumptions you provide. These assumptions, and the steps you take to enable your portfolio to realize these projections, are the most important factors to consider.
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