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The Rule of 72

The Rule of 72

by Roman on May 23, 2008

The rule of 72 is an easy and necessary rule for investors and ordinary people alike who wish to know how long will it take for their investment to double.

In order to get to know how long will it take for your investment to double you need to take the interest rate of your investment and divide 72 with it.

For example if the money in your bank account generates 6% interest per year you need to make the fallowing calculation:

72/6= 12 years

This means that when you invest 1000 dollars with an annual interest rate of 6%, it will take 12 years for it to grow to $2000.

The average annual return for the stockmarket in the US has been 12% per annum. Using the 72 rule we get that investing your money with this rate will take (72/12% = 6) 6 years to double.

Current inflation in the US is about 4% a year. By using the 72 rule we get that (72/4=18) it takes 18 years for your money to lose half of its value. Your $100 will buy 50 dollars worth in 18 years.

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{ 1 comment }

komodo dragon June 6, 2008 at 7:11 pm

i remember doing this in my high school class, it sure was easy… there is a longer and more accurate way however ( haha)

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