Rule of 72

Investors invest for one primary reason – to make a return on their money.

The rule of 72 is a rule of thumb (credited to Albert Einstein) that investors use to approximate the time it takes for money to double at a given rate of return.

It states that if you divide the number 72 by any given rate of return the answer you get is the time it takes for money to double at that given interest rate (assuming you can get the same rate each year and it is compounded annually). For example if you earn 10% on your money it would double in 7.2 years ( 72 divided by 10 = 7.2). Try it with other rates of return.

Prove it to yourself that money doubles in 7 years at 10% - use a calculator to multiply the number 1 by 1.1 seven times as follows:

1 x 1.1	= 1.1
1 x 1.1 x 1.1	= 1.21
1 x 1.1 x 1.1 x 1.1	= 1.311
1 x 1.1 x 1.1 x 1.1 x 1.1	= 1.4641
1 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1	= 1.61051
1 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1	= 1.771561
1 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1 x 1.1	= 1.9487171

The final answer 1.9487171 = approximately 2

Now - make the rule of 72 work for you.