The Rule of 72

We're always talking about investments in terms of their rate of return (e.g., 8%). These rates are really important, but they're a little abstract, and I sometimes have a hard time figuring out what they concretely mean. What I really want to know is how long it'll be until I double my money!

The rule of 72 is an imprecise-but-often-close-enough trick of mental arithmetic to calculate that. Divide 72 by an investment's annual rate of return, that the result is the number of years it'll take to double.

For example, if I invest some money at 8%, it'll double every 72/8 = 9 years or so. If I'm planning on retiring in thirty years, I can reasonably expect that investment's value to increase by roughly 8x.

I can also flip this calculation around: If I want my money to double every 10 years, I'll want an interest rate of at least 72/10 = 7.2%.

The rule of 72 is, of course, totally imprecise, but it can be a handy tool in conversation to make rough guesses.

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