Foundations · Module 6 of 6
The shape of growth
How long money takes to double, and why small amounts added every month grow faster than you’d think.
Key terms in The shape of growth
- Rule of 72
The Rule of 72 is a rough shortcut for estimating how long an investment takes to double. Dividing 72 by the expected annual rate of return gives an approximate number of years. It is a rule of thumb rather than an exact formula, so the result is only an estimate.
Source: U.S. Securities and Exchange Commission, Project C.H.A.N.G.E.: Creating Choices
- Annual percentage yield (APY)
Annual percentage yield is a standardized figure showing the total interest an account pays over a year, taking into account how often interest is compounded. U.S. rules require banks to disclose it so that deposit accounts can be compared on equal terms. It differs from a stated interest rate, which ignores compounding.
Source: Consumer Financial Protection Bureau, Appendix A to Part 1030: Annual Percentage Yield Calculation
- Annualized return
An annualized return restates an investment's gain over any holding period as an equivalent yearly rate. This makes holdings kept for different lengths of time comparable. Averaging results without accounting for time held can give an inflated picture, which is why regulators describe performance in annualized terms alongside costs and income received.
Every term on Lever is in the money glossary.
About this module
The shape of growth is part of Foundations, one of 15 subjects in Lever. It’s a short run of 5 lessons, about 13 minutes in all, so you can finish it in one sitting.
Every lesson takes one idea at a time. You read it with the math worked out step by step, answer a question that puts it to use, then see why the right answer is right and why the others aren’t.
It’s for anyone who was never taught this, and you don’t need to know anything first. Every lesson is free. Lever works out what you already know, so you can start here or let your path bring you to it.
More in Foundations
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1
What money actually is
Why money exists at all, the jobs it does for you, and why every price is written in the same currency.
6 lessons -
2
The numbers underneath
Percentages, interest that grows on itself, and the cost of choosing one thing over another. The three ideas everything else leans on.
8 lessons -
3
What keeps money working
Why paper money still buys groceries, and the trust that keeps the whole system running.
5 lessons -
4
A number and a date
Turn “I should save more” into a clear goal with a number and a date, and decide which goal comes first.
5 lessons -
5
Now versus later
Why money today is worth more than money next year, and how to weigh a choice before you make it.
5 lessons
Try this module
It’s part of Foundations. Lever will bring it to you when you’re ready, or you can go straight there.