The Rule of 72 is a simple way for investors to figure out how long it will take for an investment to double in value. It's a calculation that helps you assess your potential investment and measure the effect of compound interest on your investment dollars. The Rule of 72 says that if you divide 72 by your annual rate of return, you will get the number of years it takes for your investment to double.
For example, if you are investing at a rate of 8% per annum, the Rule of 72 says it will take nine years for your investment to double. This is just a rough estimate and not an exact calculation, but it can help you to quickly assess the potential of an investment.
The Rule of 72 can also be used to calculate how quickly debt will double. To figure this out, you simply divide 72 by the interest rate. For example, if your credit card interest rate is 18%, it will take 4 years for the debt to double. This is a useful calculation for those trying to tackle their debt, as it can give them an idea of how long it will take to pay off their debt.
It's important to note that the Rule of 72 isn't a perfect calculation and it does not take into account taxes, inflation, fees, or other factors that can affect your rate of return. This calculation is only a rough estimate and should not be used as a definitive measure of how long it will take for an investment to double.
The Rule of 72 can also be used to calculate an important deadline for those who are 72 or older. The rules for Required Minimum Distributions (RMDs) for those over 72 can seem confusing. The Rule of 72 can help you quickly estimate how much you need to withdraw from your retirement account each year in order to avoid paying a penalty.
At the end of the day, the Rule of 72 is a useful calculation that can help you assess your potential investment and figure out how long it will take for your money to double. It's important to remember that this calculation is only a rough estimate, so it's important to take into account other factors such as taxes, inflation, fees, and other factors that can affect your rate of return.
