The Rule of 72
The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed 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.
At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same time period, you could expect to double your money in about 12 years (72 divided by 6).
You can also run it backwards: if you want to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.
The science isn’t exact, though, and you may want to use a different formula to account for rates of return that fall outside a certain range.
Salaam.
- TESSA 24 June 2022
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