The rule of 72 uses a simple formula used to estimate the amount of time your investment takes to double. The formula assumes a steady annual rate of return, and it isn’t perfect, but it does give you a reasonable estimation of the time it takes.
How the Rule of 72 Works
To find the number of years it takes for your investment to double, simply divide the number 72 by the rate of return, expressed as a whole number. For example, if your rate of return is 6%, divide by 6. In this case, it takes 12 years to double your investment assuming nothing major changes during that time frame.
- 72 divided by 6 = 12 years to double the investment
Using the Rule of 72 to Make Investment Decisions
The rule of 72 is most accurate for interest rates between 5% and 10%. As the rate of return gets higher, the accuracy declines because as the rate of return rises, the amount of time it takes for your investment to double lowers. People who invest in the stock market generally see their investment double in 10 years, which is why people use the stock market to build a retirement savings. At about 1%, it takes your savings account 72 years to double its investment.
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