The Rule of 72 is a method that’ll tell you how long it’ll take to double your money, given a fixed rate of return.
What’s the Rule of 72?
If you have a fixed annual interest rate, then you can use the Rule of 72 to figure out how long an investment will take to double. It’s a method where you divide 72 by the annual interest rate.
Although it’s not completely accurate, the method will give you a good idea of the time frame. It can be off by a year or less.
However, it’s a useful shortcut because of how close you can get without having to calculate it using a formula for compound interest. Equations for compound interest will most likely require a calculator.
For example, an investment may offer 6% as the annual rate of return. To figure out how long it’ll take to double, divide 72 by 6, and you’ll get 12 (72/6 = 12). That means it’ll take 12 years for your investment to double.
The Rule of 72 works for any loan or investment that earns or charges compound interest.
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