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Rule of 72

The rule of 72 is a nifty, short-hand way of estimating how many years it will take a given amount of money to double at a specific interest rate. Simply take 72 and divide by the interest rate.

Expanded Definition

Using this rule, one can figure out what annual return rate must be earned in order to double one's money within a certain time frame. For instance:

  • 7 years: 72 / 7 = 10%, or about what the S&P 500 has returned, on average.
  • 6 years: 72 / 6 = 12%.
  • 5 years: 72 / 5 = 14.4% or about 15% (easier to remember than "14.4%").

You can use the rule of seventy-two by using interest rates or years. e.g. using the previous examples:

  • 10% annual return: 72 / 10 = 7.2 years
  • 12% annual return: 72 / 12 = 6 years
  • 15% annual return: 72 / 15 = 4.8 years

Thus it a very versatile and fast arithmetic tool indeed.

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