Rule of 72 Calculator

What is the Rule of 72?

The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of return. It's an approximation that investors use to estimate investment growth. By dividing 72 by the annual rate of return, you can get a rough estimate of how many years it will take for the initial investment to double.

The Rule of 72 Formula

The formula for the Rule of 72 is:

\[T = \frac{72}{r}\]

Where:

• \(T\) = Time to double the investment (in years)
• \(r\) = Annual rate of return (as a percentage)

How to Calculate Using the Rule of 72

1. Identify the expected annual rate of return on your investment.
2. Divide 72 by this rate.
3. The result is the approximate number of years it will take for your investment to double.

Example Calculation

Let's calculate how long it would take to double an investment with an 8% annual return:

\[T = \frac{72}{8} = 9 \text{ years}\]

This means it would take approximately 9 years for an investment to double at an 8% annual rate of return.

Visual Representation

This diagram illustrates the doubling of an investment. The top half represents the initial investment, while the bottom half represents the growth to double the initial amount.

Limitations of the Rule of 72

While the Rule of 72 is a handy tool for quick estimates, it's important to note its limitations:

• It's an approximation and becomes less accurate for very high or very low rates of return.
• It assumes a constant rate of return, which is rarely the case in real-world investments.
• It doesn't account for factors like taxes, inflation, or investment fees.

For more precise calculations, especially for important financial decisions, it's advisable to use more comprehensive financial calculators or consult with a financial professional.