Why is 72 a magic number?
The “rule of 72” is a simple formula that helps you estimate how long it will take for an investment to double in value based on a fixed annual rate of return. Here’s how it works in simple terms:
- Take the number 72.
- Divide it by the annual interest rate or rate of return you expect from your investment.
The result of this calculation is the approximate number of years it will take for your initial investment to double in value.
For example, if you expect an annual return of 8% on your investment, you can use the rule of 72 as follows:
72 / 8 = 9
So, it would take approximately 9 years for your investment to double at an 8% annual return.
The rule of 72 is a handy tool for getting a quick estimate of how long it will take for your money to grow, and it’s particularly useful for understanding the power of compound interest. Keep in mind that it provides a rough estimate, and actual results may vary based on the specific investment and market conditions.
Questions? Contact Nathan at TRUEHELM.
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