The ‘Rule of 72’ and next generation investing


Special to the Recorder

If you ask my 4- and 5-year-old sons where things come from, they’ll say, “Amazon” – followed up by, “It can arrive in two days with Prime.”

And I am just as guilty of expecting things instantly. Just this week I signed up for the grocery delivery service “Shipt” but was disappointed that my delivery would take five hours… I needed those eggs in one hour to make my squash casserole!

So, in a society that demands and receives things instantly, how do we teach kids and young adults to save for the long term?

Do we have to invent a new technique? No. We must turn to one of the greatest inventors, Einstein, and his “Rule of 72.” The Rule of 72 states one can divide the number 72 by the interest rate you are receiving and you will find the number of years it will take to double your money. Now take the Rule of 72 coupled with time and the power of compounding and we have instant intrigue! Einstein referred to compounding as the 8th Wonder of the World. Some of us here in Jacksonville thought the Jacksonville Jaguars’ victory this past Christmas Eve was the 8th Wonder of the World, or at least a Christmas miracle.

As I sat down this past Tuesday to introduce Investing 101 to some of our second generation clients – which we define as individuals ages 17 to 70 who are coming into their parents’ money or some inheritance or liquidity event – I wondered if they would be impressed with the 8th Wonder of the World? The two sisters – one a 23-year-old New Yorker and the second a junior at Florida State University – have great ambition, but would they have great ambition in socking away their hard-earned money that they shouldn’t touch for 40-plus years?

As we reviewed stocks versus bonds and emerging equities versus domestic equities, they started to ask good questions. Then we went over diversification and the reason we must stay invested, not wanting to lead with either fear or greed. Finally, we got to the Rule of 72 and compounding. As we looked at a $10,000 investment earning 12 percent (we can discuss where you can get a 12 percent return another time!) turning into $2,500,000 in 48 years they were ready to start saving.

These young women are now far ahead of their peer group, increasing their 401(k) contributions and looking at Roth IRA options. It wasn’t because of their original interest in investing, but their mom and dad taking the time to invest in their daughters’ future. And just like what my boys want from me is my time, their mom and dad carved out an hour and a half of their family Christmas time to have a lasting impact. Time is a wonderful non-invention!

Holly Tyrrell is a relationship manager and associate director at Legacy Trust Family Wealth Offices.