What is the "rule of 72" (sometimes called the "rule of 70") with regards to investment, and how do I apply it?
The Rule of 72 is a rough guide for calculating how long it would take to double your investment through compound interest, given a fixed yearly rate of return.
It means that the time taken (in years) to double your investment value is approximately equal to:
Example: Assuming you have invested an amount, X, in an investment returning 6% per year, and you reinvest all the returns from the investment. Then, using the Rule of 72, the time taken to double your investment value to 2X would be approximately
It could also be used to calculate how long it takes for inflation to reduce the value of your money by half .
The Rule of 72 demonstrates the principle behind why it's never too soon to start investing – it could be the difference between $2 million and $4 million.