What is the rule of 72?

The Rule of 72 is a mathematical formula used to determine the approximate number of years it will take for an investment to double in value when compounded annually. The rule states that you divide 72 by the annual rate of return (or interest rate) to get the approximate number of years needed for your money to double. For example, if you invest $1,000 at a 6% annual return, it would take approximately 12 years ($72 / 6 = 12) for your money to double. This calculation assumes that no additional contributions are made and all returns are reinvested into the same investment vehicle with consistent annual returns over time. The Rule of 72 can be helpful when determining how long it will take before an investment reaches a certain value. It can also be used to compare the potential returns of different investments since it provides a quick way to estimate how long it will take for an investment to double in value. The Rule of 72 is not perfect, however, and should only be used as a general guide. Factors like inflation and taxes can significantly impact the actual rate of return on an investment over time and may cause the amount of time needed for money to double in value to vary from what is calculated using this rule.

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