Token Advice: The Magic Number 72

Welcome back to another exciting edition of the Token Advice newsletter, where we dive deep into financial wisdom to help you build wealth and secure your future. Today, we're exploring a simple yet powerful concept: the Rule of 72. This financial tool is convenient for those of us on the path to financial independence, no matter where we are.

What is the Rule of 72?

The Rule of 72 is a quick mental formula used to estimate the years it takes for an investment to double its value at a fixed annual rate of return. It's a nifty tool that can empower you to make informed investment decisions and plan for your financial future.

Here's how it works:

Divide 72 by the annual interest rate or return you expect to earn on your investment. The result is the approximate number of years it will take for your investment to double.

Let's break it down with some real-life examples:

1. Early Investor - Sarah

Sarah, a young homeschooling mom, is passionate about securing her family's future. She decided to invest in a diversified portfolio with an expected annual return of 7%. By applying the Rule of 72, she calculates that her investment will double in approximately 10.3 years (72 ÷ 7). This knowledge motivates her to start early and be patient, knowing her wealth will grow substantially over time.

2. Mid-Career Expert - John

John is working for a large law firm and looking to diversify his retirement savings. He decides to invest in a tax-advantaged retirement account with an expected annual return of 6%. Applying the Rule of 72, John realizes his investments will double in approximately 12 years (72 ÷ 6). This insight encourages him to maximize his contributions and focus on long-term goals.

3. Nonprofit Founder - Maria

Maria, our dedicated nonprofit founder, wants to ensure financial stability for her organization. She invested her organization's surplus funds in a low-risk bond fund with an expected annual return of 4%. Using the Rule of 72, Maria calculates that her nonprofit's investments will double in around 18 years (72 ÷ 4). This knowledge helps her create a sustainable financial plan for her organization.

4. Seasoned Entrepreneur - Robert

Robert, our experienced entrepreneur, is gearing up for retirement. He plans to invest in dividend-paying stocks with an expected annual return of 5%. By applying the Rule of 72, Robert realizes that his investments will double in approximately 14.4 years (72 ÷ 5). This information guides him in balancing risk and reward as he transitions into retirement.

The Power of Time

No matter where you are, the Rule of 72 underscores the importance of time in building wealth. Starting early and being patient can significantly impact your financial future to achieve your unique financial goals.

Remember, while the Rule of 72 is a valuable tool, it's essential to diversify your investments and seek professional advice when needed. Contact us if you’re interested in learning how to diversify your portfolio.

Want to learn more about the rule of 72? Check out Investopedia

At 401, we believe that ‘holistic’ financial planning involves conversations around all areas of a client’s life, especially their health. If health is genuinely wealth, we must help clients align their financial and physical health. Our health planning program is designed to support clients who want help maintaining a highly quality lifestyle. We provide some base-level biomarkers for health tracking personalized health plans and encourage having ‘walking meetings’ whether in person or virtual. 

Above, you’ll see an example of the 401 Financial Wellness Portfolio. It is a healthy version of our financial portfolio allocated to the areas we think are the core of any quality health and wellness program. You’ll also see the activities go from very ‘crypto’ risky, like sprinting, to a ‘cash equivalent’ like walking. Like any good portfolio, the activities chosen should be adjusted based on age, goals, time horizon, and current physical status. Feel free to share it with family and friends as they journey to health, wealth, and prosperity! 

401 Financial Cohort

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