The Rule of 72

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My friend Bill Shopoff started a new REIT (real estate investment trust) recently. It’s actually the first REIT that is based on land, which is Bill’s specialty. I’ve known him for 15 years and have seen his average returns for investors.

Just for fun, my son David and I sat down, knowing the returns that Bill gets and did a little calculation using The Rule of 72. If you don’t use this rule yet in your everyday life, read on, because you’ll want to master this quick “back of the envelope” calculator.

Just a little history first: Bill has done limited partnership investing in the past. He’s had some good success, some runaway success and some not-so-great results. The thing is his average consistently hit around 29% – 30% return per year, when you take all of the projects into consideration. That’s a big reason of why he wanted to lump the projects all together. That way he’d be able to average the good, with the great and with the no-so-great. Will he continue to get the same return? Who knows. Past results do not guarantee future returns. That should be engraved on every business and investment advisor’s forehead.

But, just for the sake of this argument, let’s say that the return is 30%. The Rule of 72 is a quick calc you do to see how long it will take for your money to double in value. The interest rate is divided into 72 and the answer is how many years it will take to double.

So, 72 divided by 30 will equal 2.4 years. Contrast that with a savings account that gets you 4%. 72 divided by 4 equals 18. That’s the difference often between Level 3 and those aspiring to be Level 3. They see how important time is in wealth-building.

Start today, in whatever way you can. Look for the highest returns possible, but do it with solid due diligence and personal advantage (the advantage your knowledge of this type of wealth vehicle will bring.)

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