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Compounding

Earning returns on your earlier returns, so growth speeds up over time.

ETFs & PortfolioBeginner

Definition

A rough way to see it is the Rule of 72: divide 72 by the annual return rate to estimate how many years it takes to double. At a 6% return, money doubles in about 12 years.

Formula

Years to double is approximately 72 / annual return (%)

Watch out for

Fees and taxes reduce compounding. The Rule of 72 is an approximation that works best for rates between about 6% and 10%.

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