Rule of 72: Why it Matters
The Rule of 72 is a simple way for someone to determine how long an investment will take to double given an 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.
For many people, predicting how any given investment will perform over a period of time can be difficult, but being able to determine a time frame for expected growth is invaluable. This is where the rule of 72 can help.
If you want to know how long it will take you to double your investment at a specific interest rate, the rule of 72 is the quickest way to do so. But even if you’re not looking to multiply your money, understanding the period of time it would take to do so can help you in financial planning.
People love money, and they love it more when the money is doubling. However, you must remember the Rule of 72 does not work with negative numbers so investments with downside potential do not make good candidates for the Rule of 72 equation.
Learn more about the Rule of 72 and the Power of Compound Interest in the video below.