"Tell me about the Rule of 72 again and make it quick," said Susan as she sipped her Sea Breeze at the Mystic Island Casino. I moved my Bass ale aside and stared at her in disbelief. She was asking about a mathematical rule of thumb quoted by Warren, her new account manager, earlier that day.

"Do you really want to know?"  I asked. "Yes," she replied, knibbling on her chicken fingers with honey sauce.  

"Ok." I said, drawing a deep breath, "Here goes. Warren said that a 5% interest paying CD was not as good an investment as a 5% tax free fund because, after paying income tax to Uncle Sam each year, the effective interest on the CD was only 4%.  Warren said Einstein thought compound interest was almost magical in its effect."  "I just wrote that in my Blog ", I told Warren.  

"Warren calculated in his head that it would take 18 years to double your money in the yearly taxable CD (72 divided by 4 equals 18 years) but 14 years to double it in a 5% tax deferred fund (72 divided by 5 equals 14.4 years). That's the rule of 72.  I just wrote about the rule of 72 in my Blog, I told Warren again."

Warren continued, "Now, if we could get you into a tax free fund of stocks that historically has earned 12% compound interest when averaged through up and down markets, then you could double your money before taxes in 6 years (72 divided by 12 equals 6). If you tried a more conservative fund of dividend paying stocks with less growth, then you might get 8% compound interest , and then your money would double by the magic of compound interest in 9 years (72 divided by 8 equals 9 years)". 

"Anyone can be an Einstein about investments, if they know the Rule of 72 and apply it to making the best long term financial decision", said Warren.

"So Susan", I said, "Would you like to know more about the rule of 72 now? The same rule can be used to compare putting money in real estate for long term growth versus versus putting it in stock and bond funds". 

"No", she  said, "I've had enough Rule of 72 for now. I'd rather have another Sea Breeze. And let's split a plate  of buffalo wings".

To be continued....