What is the rule of 72?
The rule of 72 is a mathematical shortcut used to determine the amount of time that it will take for an investment to double, if it is earning a fixed rate of interest. To apply the rule of 72, the number 72 is divided by the interest rate earned by the investment. The value of the answer will be the number of time periods, usually expressed in years, that will be required for the investment to double. For example, if an investment earns 12% interest annually, then it will take roughly six years to double. As convenient a tool as the rule of 72 is, it is not exact, but rather provides an approximation. It is best suited for estimations involving investments that compound annually. For investments that compound continuously, there is a rule of 69 that is more accurate, and works the same way that the rule of 72 does. For daily compounding, the rule of 70 is often used. The rule of 72 provides the most accurate results when the interest rate on the investment is relatively low. If the ra
