December 16, 2023 | Fairlyeven
A Quick Way to Estimate Investment Growth with the Rule of 72
In today’s volatile markets, investors are under more pressure than ever to make reliable cost estimates and determine when they will hit their target returns. Most modern software tools are complicated, time-consuming, and barely accurate. The Rule of 72, while not razor-accurate, offers a quick, zero-cost strategy for estimating how long an investment will take to double itself.
What is the Rule of 72?
Knowing the Rule of 72 is key to making smart investments and estimating growth through compound interest. It's a quick and easy way to get a rough idea of how long it will take for your investments to double. The rule states: Divide 72 by your expected annual rate of return to estimate the doubling time in years.
How Rule of 72 Works
The Rule of 72 provides a quick calculation that allows investors to estimate how long an initial investment will take to hit a 2x ROI at a given annual rate of return. The formula for calculating the ballpark figure appears below:
Years to 2x ROI = 72 / Expected Rate of Return
For example, if you invest $1,000 at a 6% compound interest rate, the Rule of 72 tells us it will take approximately 72 / 6 = 12 years for your investment to double to $2,000.
The Rule of 72 is a formula used to estimate the length of time it takes an investment to double in value based on a fixed annual interest rate. The formula is helpful for interest rates ranging from 6% to 10%.
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December 16, 2023 | FairlyevenBuilding Your Financial Health and Wealth with Cardinal Rules of Money