What is the rule of 72?
The rule of 72 is a way of finding out long it will take for your investment to double. Divide an investments annual return into 72, and you will have the number of years necessary to double your investment. Example:An investments annual return is 10%. Ten percent divided into 72 is 7.2, so your investment will double in 7.2 year.
If you’re new here, you may want to subscribe to my RSS feed. Thanks for visiting! Q. Someone mentioned the Rule of 72. What does it mean? Josie’s answer – I love the rule of 72 which is a very handy to remember. It is known as the rule of 72 because it can give you a quick answer as to how quickly your investment can grow by re-investing your investment’s earnings. It tells you how many years (give or take a month) it will take to double your money at a given rate of return. You need to start with the number ‘72’. You then determine what rate of return you expect to get on your investment. By dividing this return into 72 you will know for how many years you need to invest to double your money. For example, if you expect to receive a return of 10 per cent a year, then you divide 10 into 72, which gives you 7.2 years. In other words, you can double your money in just over seven years when you re-invest your earnings and your investment earns 10 per cent a year (make sure you use an afte
It is an easy way to get an idea of how fast your money can grow. First, you take the number 72 and divide it by the interest rate you are earning. This tells you how many years it will take for your money to double. If you are getting 6% interest that means that 72/6 is 12 years to double your money.
The Rule of 72 is simply the rule for doubling your money. Sound fun? It does to me! The rule is fairly accurate but, not perfect and does not account for taxes. Simply stated, if you take your anticipated rate of return on an investment and divide that number into the number 72 the result is how long it would take for your investment to double. Example: If you invest $10,000 and expect a rate of return (the interest you expect to earn on your money) of 10% you should expect to have $20,000 at the end of 7.2 years – 72 divided by 10.000% equals 7.2 years. If you invest $10,000 and expect a rate of return of 8% you should expect to have $20,000 at the end of 9 years – 72 divided by 8.000% equals 9 years. Now the fun begins. In the mortgage example used above (30- vs. 15-year mortgage) we said that at the end of 15 years you should have $380,664.61 saved. If you continue to receive an 8% return you would have at the end of 9 more years $761,329.22 saved. The doubling or Rule of 72 only a
