Few terms in personal finance are as important, or used as frequently, as “risk.” Nevertheless, few terms are as imprecisely defined. Almost universally, when financial advisors or the media talk about investment risk, their focus is on the historical price volatility of the asset or investment under discussion.
The Rule of 72 is a great mental math shortcut to estimate the effect of any growth rate, from quick financial calculations to population estimates.
It’s the “rolling snowball” effect. Put simply, compounding pays you earnings on your reinvested earnings. The longer you leave your money at work for you, the more exciting the numbers get.