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The Rule of 72

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The Rule of 72 calculator is a tool designed to estimate how long it will take for an investment to double in value given a fixed annual interest rate. To find out how long it will take to double your investment, simply enter your annual interest rate into the box below (the default value is set to 6%).

Years to double investment:

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What is the Rule of 72?

The Rule of 72 is a simple formula used to estimate the number of years required to double the value of an investment at a fixed annual interest rate. It is a quick and useful tool for understanding the effect of compound interest.

Formula

Here is the formula:

\text{Years to double} = \frac{72}{\text{Annual interest rate}}

How it works

  • Annual interest rate: This is the percentage return on the investment each year.
  • Years to double: The number of years it will take for the investment to grow to twice its original value.

Example

If an investment has an annual interest rate of 6%, you can use the Rule of 72 to estimate how long it will take to double:

\text{Years to double}=\frac{72}{6}=\text{ 12 years}

Applications

  • Investments: Investors can use the Rule of 72 to quickly gauge how different interest rates affect the growth of their investments.
  • Inflation: The rule can also be used to understand the impact of inflation. For example, if the inflation rate is 3%, prices will roughly double in \frac{72}{3} = 24 years.
  • Debt: It can also apply to understanding how debt grows. If you have a debt that grows at a certain rate, the Rule of 72 can estimate how long it will take for that debt to double.

Limitations

  • Approximation: The Rule of 72 is an approximation and works best for interest rates between 6% and 10%. For rates significantly outside this range, the estimation may become less accurate.
  • Compound frequency: It assumes annual compounding. For other compounding periods, the actual doubling time may differ.

Overall, the Rule of 72 is a handy tool for making quick mental calculations regarding the growth of investments, inflation, and interest.