Rule no 72

One of the greatest inventions of Einstein I would say is the rule of 72. It is a formula of wealth. In this formula, you will discover learning investment skills are the utmost important thing in life. I will show you why investment skills and Einstein's formula can make you rich! To quote Albert Einstein wisdom:

Albert Einstein:  “If people understood the Rule of 72, they would never put their money in banks!”

Let’s say there are two persons – Eric and Michelle. Eric is a good and hardworking person but know nothing about investment. Michelle is above average investor who knows how to generate 12% return per year on her money. 

Both of them have $10,000 and decide to invest the money for 30 years.  Due to the limitation of investment knowledge, Eric put his money in fixed deposit for 3 % return annually. Michelle, on the other hand, invests her $10,000 in stock market and earning 12% return annually. 

After 30 years, Michelle will have about $300,000 from her initial investment of $10,000. However, Eric only can accumulate $24,272 after 30 years. The difference is about $276,000.

Why there is a staggering disparity of amount after 30 years? The answer is that higher rate of return will generate the exponential effect on the money (or wealth). As you can see in the chart, the 12% return per year allows Michelle’s wealth to double every 6 years. The 3% return only can double the money every 23.3 years.  This is the secret of wealth that discovered by Einstein who invented the rule of 72. This rule says that your money will double every X years  (X =  72 /rate of return(%)) providing that  you do not take out the money.

Good investment skills will almost certainly make you rich! A millionaire is never a difficult dream if you have discipline,  patient, perseverance and above average investment skills.