The Rule of 72

The Rule of 72
One of the simplest rules of investing, yet commonly forgotten, is the Rule of 72. By using this rule you can either determine how long for a single sum to double in value or determine the interest rate required for an investment to double within a specific number of years.

To calculate the number of years required for an investment to double in value, divide 72 by the annual interest rate. For example, if the objective is to double a $1,000 investment to $2,000 where the original investment is earning an annual compound rate of 9%, it will take approximately 8 years for this to occur (72/9=8).

To calculate the interest rate required for an investment to double in value, divide 72 by the number of years. If, for example, an investor wants to double his original investment in 10 years, it will require an approximate annual interest rate of 7.2 percent (72/10=7.2).