The National Directory of Certified Public Accountants

Ask A CPA - Investments & Financial Planning

Does It Really Make That Big Of A Difference Earning 8% Or 10% On My Investments ?

Yes, and the difference gets bigger and grows faster with time. The rule of 72 is a method that quickly calculates how long money takes to double. You take 72 and divide it by the rate of return and the answer is the number of years it takes money to double in value. Thus 72 divided by 8 is 9 years, whereas 72 divided by 10 is 7.2 years. The money earning 8% will double again in 9 years for a total of 18 years to quadruple, whereas the money earning 10% will quadruple in 14.4 years, a much shorter time frame. Of course, you need to assess the extra risk which might be associated with the higher return.

If you need professional help with "Investments & Financial Planning" or have other tax questions, we can help you find a local licensed CPA for a free, no-obligation consultation.