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Simple English definitions for legal terms
rule of 72
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A quick definition of rule of 72:
The rule of 72 is a simple way to figure out how long it will take for your money to double if you invest it at a compound interest rate. All you have to do is divide 72 by the interest rate, and the answer will tell you how many years it will take for your investment to double. For example, if the interest rate is 6%, it will take 12 years for your investment to double (72 divided by 6).
A more thorough explanation:
The rule of 72 is a simple method used to determine how long it will take for an investment to double in value at a compound interest rate. It is calculated by dividing 72 by the interest rate.
If you invest $10,000 at a compound interest rate of 6%, it will take approximately 12 years for your investment to double in value. This is calculated by dividing 72 by 6.
Another example is if you invest $5,000 at a compound interest rate of 8%, it will take approximately 9 years for your investment to double in value. This is calculated by dividing 72 by 8.
The rule of 72 is a useful tool for investors to estimate how long it will take for their investments to grow. It is important to note that this is just an estimate and actual results may vary.