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 72 rule formula?
The rule says that to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.
Where did the rule of 70 come from?
Simply stated, the “rule of 70” says that the number of years it takes for an amount growing at x % per year to double is roughly equal to 70/x. So, in the example above if 70/x = 10 years, (it took ten years for house prices to double) then x = 7%. As I said, a no-brainer to calculate using the rule of 70.
What is the difference between the rule of 70 and the Rule of 72?
The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double. When using the rule of 70, the number 70 is used in the calculation. Likewise, when using the rule of 72, the number 72 is used in the calculation.