The Rule of 72 says that to find the number of years needed to double your money at a given interest rate, you just divide 72 by the interest rate.
For example, if you want to know how long it will take to double your money at nine percent interest, divide 72 by 9 and get 8 years.
How does the 72 rule work?
The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors obtain a rough estimate of how many years it will take for the initial investment to duplicate itself.
What is the rule of 72 examples?
The rule of 72 is a method used in finance to quickly estimate the doubling or halving time through compound interest or inflation, respectively. For example, using the rule of 72, an investor who invests $1,000 at an interest rate of 4% per year, will double their money in approximately 18 years.
Does Rule of 72 include compounding?
Variations in Applying the Rule of 72
For example, the rate of 11% annual compounding interest is 3 percentage points higher than 8%. The basic rule of 72 says the initial investment will double in 3.27 years.
What is the rule of 7 in investing?
The Rule of 72 states that the amount of time required to double your money equals 72 divided by your rate of return. For example: If you invest money at a 10 percent return, you will double your money every 7.2 years. If you invest at a 7 percent return, you will double your money every 10.2 years.