The Rule of 72

The Rule of 72 is a simple formula that helps investors estimate the time it takes for an investment to double in value. To use the Rule of 72, divide 72 by the annual rate of return to get the number of years it will take for the initial investment to double.

If an investment has an annual rate of return of 8%, it will take approximately 9 years for the investment to double in value (72/8 = 9). The Rule of 72 is not precise and some people use 69.3 which is slightly more accurate. This rule holds up well when the rate of return is below 10%.

Example: You invest $20,000 at an annual interest rate of 6%. Using the Rule of 72, you can estimate that your investment will double in value in approximately 12 years (72/6 = 12). Therefore, after 12 years, your investment will be worth approximately $40,000.