Saturday, February 02, 2008

The Rule of 72

A quirky little mathematical trick you can use to determine how long it will take a sum of money to double is called the rule of 72. The way this works is say for example you put $1,000 into an investment growing at 8% per year. Divide 72 by 8 which is 9. This means that your investment would grow to approximately $2,000 in 9 years if growing at a rate of 8%. This formula will closely approximate the number of years for the majority of growth rates that are commonly seen. So a 10% growth rate would double an investment in roughly 7.2 years. It stops working when using exorbitant growth rates or very, very tiny growth rates.

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