Rule of 72

18 May Rule of 72

The “Rule of 72” is an approximate way to estimate how long will it take to double your initial investment.  It works closely with compound interest. (See compound interest here if you are curious). The rule states that if you divide 72 by the rate of return of your investment you will get the number of years that it will take to double your investment.  Note that it is not important how much money you invest the rate of return determines how long it takes to double your money.  Here are couple of examples:

Example No.1:

Initial investment: $100

Rate of return: 5%

72 / 5 = 14.4 years → you will have $200 dollars in 14.4 years…. Yay (not great I know)

Example No.2:

Initial investment: $10000

Rate of return: 10%

72 / 10 = 7.2 years → that is better!  You will have $20000 after 7.2 years approximately if you have a return of 10% every year.