Understanding the Rule of 72: A Simple Trick for Estimating Investment Growth

“Unlocking the Power of Compound Interest: The Rule of 72 Explained”

Have you ever wondered how long it would take for your money to double with interest? The Rule of 72 is a simple yet powerful tool that can give you a ballpark estimate.

The Rule of 72 works by dividing 72 by your expected annual interest rate (as a percentage) to determine roughly how many years it will take for your money to double. For example, if your investment earns 4 percent a year, it would take about 18 years to double.

But the Rule of 72 isn’t just for investments – it can also be used to estimate how long it will take for your money’s buying power to be cut in half due to inflation. Simply divide 72 by the inflation rate to get an estimate.

While the Rule of 72 is an estimate and works best with interest rates around 8 percent, it can still provide a quick sense of how your money might grow over time.

To use the Rule of 72, simply divide 72 by the rate of return on your investment. Remember, the interest rate should be expressed as a whole number, not a decimal.

For more accurate results, especially with continuous compounding interest, you can use 69.3 instead of 72. The Rule of 72 works best in the range of 5 to 10 percent interest rates.

The Rule of 72 can help you make informed decisions about your investments and understand the impact of inflation on your purchasing power. By using this simple rule, you can plan for your financial future and make the most of your money.

So next time you’re thinking about investing or planning for the future, remember the Rule of 72 and unlock the power of compound interest.