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ROI and the Rule of 72

June 2, 2015

rule of 72

What would have been your Return on Investment (ROI) if you had invested in Apple stock on July 1, 2004? Well, according to Morningstar, if you bought Apple stock on that date, you paid $2.31 a share. On July 11, 2014, the same Apple stock was trading at $95.22 per share. A quick calculation reveals your ROI would have been 40 times greater than your initial purchase price.

So, that means if you started your business on July 1, 2004 and used your own hard earned $100,000 as start-up capital, once again, using the Rule of 72, with the average ROI of seven percent, your initial capital investment would have doubled and generated $200,000 worth by July 1, 2014.

How would you feel about cashing out and realizing double your initial investment of $100,000 after ten years? Or, do you think your business (and hard work) is worth far more than that? And, when would you realize your ROI—which is much more than dollar figures— is also your time, your sweat, and your tears?

Realistically, you should be approaching your business as an investment—even as an investable asset. You just happen to be the one in charge, driving the ROI year after year.

Before we go any further, let’s all get on the same page about what the Rule of 72 is. For our purposes, the definition of the Rule of 72 is: A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.

For example, if you want to know how long it will take to double your money at 12% interest, divide 12 into 72 and you get six years (via Investopedia).

How is the Rule of 72 working for you?

Take a moment to think about your answer.  Is it any one of these?

  • I’m putting out fires every day in my business, and it’s so competitive out there; I don’t have time to think about the Rule of 72.
  • My business is in expansion mode, we need capital…
I don’t think the Rule of 72 applies here.
  • It doesn’t matter to me. I’m not in business for money because I am so passionate about what I do.
  • I am not really thinking about cashing out or retiring anytime soon, so I can’t be bothered to look at the Rule of 72 right now.

As a result, the idea of cashing out or selling simply hasn’t crossed your mind.

It’s a widely held misconception that you can realize your ROI in your business only by selling to a third party or through an IPO. The fact is, you have more options than you can imagine. There are actually 27 different methods to realize your ROI if you intentionally plan and execute in a timely manner.

Wouldn’t it be nice to know where your business is today financially? Would you like to go ahead and look at the Rule of 72 and see how your investment in your business—and yourself—is going?

You will gain insights into your business that put you closer to achieving your business goals.

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Want to know more about those 27 methods and how the Rule of 72 applies to your situation? Check out AMA's many financial courses and resources.
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About The Author

Chia-Li Chien, CFP®, PMP; Exit Strategist for Women Business Owners at Value Growth Institute in Charlotte, NC. She is the award-winning author of the books: Show Me The Money and Work toward Reward and a faculty member of the American Management Association. Her blog and newsletter was named a Top Small Business Resource by the New York Times You’re the Boss blog. She can be reached at jolly@chialichien.com or 704-268-9378.

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