Rule of 72
The Rule of 72 is a simple way to estimate the amount of time it will take for an investment to double in value. It is based on the assumption that the rate of return on the investment is fixed and known. The Rule of 72 states that if you divide the number 72 by the rate of return, you will get the approximate number of years it will take for the investment to double in value. For example, if you invest $1,000 at a rate of return of 8%, it will take approximately 9 years for the investment to double in value ($2,000).
History of the Rule of 72
The Rule of 72 is believed to have originated in the 16th century, when Italian mathematician Luca Pacioli wrote about it in his book Summa de Arithmetica, Geometria, Proportioni et Proportionalita. Since then, the Rule of 72 has been used by investors and financial advisors to estimate the amount of time it will take for an investment to double in value. It is also used to calculate the amount of time it will take for debt to be paid off, or for a savings goal to be achieved.
Table of Comparisons
| Rate of Return | Time to Double |
|---|---|
| 4% | 18 years |
| 6% | 12 years |
| 8% | 9 years |
| 10% | 7.2 years |
| 12% | 6 years |
Summary
The Rule of 72 is a simple way to estimate the amount of time it will take for an investment to double in value. It is based on the assumption that the rate of return on the investment is fixed and known. The Rule of 72 states that if you divide the number 72 by the rate of return, you will get the approximate number of years it will take for the investment to double in value. For more information about the Rule of 72, you can visit websites such as Investopedia, The Balance, and Money Crashers.
See Also
- Compound Interest
- Time Value of Money
- Interest Rate
- Annual Percentage Rate (APR)
- Compound Annual Growth Rate (CAGR)
- Net Present Value (NPV)
- Internal Rate of Return (IRR)
- Future Value (FV)
- Present Value (PV)
- Discount Rate
