Compounding is a powerful thing for us and against us.

An article in today’s Herald by Noel Whittaker is well worth reading.   It puts the numbers into some perspective.

It is about compounding and how it can work for us and against us.

He discusses how to work out how much you will have in retirement from an amount of money invested using the Rule of 72.

An amount of $100,000 invested at say 8% will double in value every 9 years.  That is 72 divided by the annual long-term return.  In this case 72 divided by 8.

Consequently, $100,000 will grow to $200,000 in 9 years.    Another 9 years will see a doubling again to $400,000.   After 36 years $1.6 million.

Varying the rate of return up or down has a big effect on the outcome.     Current returns might for example average 3% meaning that doubling an amount invested will take 24 years.

The daily growth rate of the COVID-19 virus is currently reported in Australia at 2% a day.   Using the Rule of 72 means that a doubling of cases will occur in 36 days.

Slowing the rate of increase is so important in our efforts to minimise the impact of compounding and the related amount of illness caused by the virus.

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