The rule of 72

 The Rule of 72 is a simple formula to estimate how long it will take for an investment to double in value based on the interest rate or rate of return. Here's how it works:

Formula

Years to double = 72 / Annual Rate of Return

Example

If you invest in a stock with an expected annual return of 8%, it would take:

Years to double = 72 / 8 = 9 years

How it works

1. *Higher returns*: Lower number of years to double.

2. *Lower returns*: Higher number of years to double.

Limitations

1. *Simplified estimate*: The Rule of 72 is a rough estimate and doesn't account for compounding frequency or fees.

2. *Assumes consistent returns*: Actual returns may vary from year to year.

Uses

1. *Investment planning*: Helps estimate the potential growth of an investment.

2. *Comparing investments*: Allows for quick comparison of different investment options.

The Rule of 72 is a useful tool for investors to quickly estimate the potential growth of their investments .