Last Updated: November 14, 2022, 12:47 PM IST
As an alternative, it can figure out how many years it will take to double an investment by calculating the annual rate of compounded return.
The Rule of 72 is a simple, frequently used to determine how many years are needed to double an investment at a specific yearly rate of return.
The best method to make the most of your money or savings is investment. Although keeping money in cash or bank savings accounts is seen as a safe strategy, investing enables it to increase in value over time with the advantages of compounding and long-term growth.
The goal of investing is to enhance value and equity, create wealth, and generate future income. You can invest in stocks, bonds, mutual funds, options, futures, precious metals, real estate or small businesses. But are you aware of Rule 72 of the investment? If not, then read further.
The Rule of 72 is a simple, frequently used to determine how many years are needed to double an investment at a specific yearly rate of return. As an alternative, it can figure out how many years it will take to double an investment by calculating the annual rate of compounded return.
Although calculators and spreadsheet applications like Microsoft Excel offer functions to precisely compute the precise amount of time needed to double an investment, the Rule of 72 is useful for rapid mental calculations to estimate a number. It is frequently explained to new investors as it is simple to understand and use.
How to calculate?
To calculate the time period in which your investment will be doubled, divide 72 by the expected rate of interest. The formula ( years to double = 72/ expected rate of return) may handle fractions or parts of years, therefore the number of years need not be a whole number. The resulting estimated rate of return also makes the assumption that interest will compound at that rate throughout the duration of an investment’s holding period.
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