# What is the Rule of 72?

Investing and finance can be complex. However, there are some simple and effective tools that can help anyone make better decisions when it comes to money. One such tool is the Rule of 72. It is an easy way to estimate how long it will take for an investment to double in value.

### How does it Work

The Rule of 72 is a mathematical formula that can be used to estimate the time it takes for an investment to double in value, based on the rate of return. To use the Rule of 72, simply divide 72 by the expected rate of return. The result is the number of years it will take for the investment to double in value.

For example, if you expect a 6% rate of return on your investment, you can use the Rule of 72 to estimate that it will take approximately 12 years for your investment to double in value (72 divided by 6 equals 12). Alternatively, if you want to double your money in 10 years, you can use the Rule of 72 to determine that you need to achieve a rate of return of approximately 7.2% (72 divided by 10 equals 7.2).

### Why is it Useful

The Rule of 72 is a useful tool because it does not need complex calculations or financial modeling. This can be particularly helpful for individuals who are just starting out in investing. In addition it can help those who want to quickly assess the potential returns of different investment opportunities.

However, it is important to note that the Rule of 72 is not a perfect formula. It should not be relied upon as the sole basis for making investment decisions. In reality, the actual time it takes for an investment to double will depend on a variety of factors. This includes the specific investment vehicle, the rate of return, and the overall economic conditions at the time.

Additionally, the rule assumes a constant rate of return, which may not always be the case. In reality, the rate of return on investments can fluctuate over time. This can impact the actual time it takes for an investment to double in value. As such, it is important to use the Rule of 72 as a rough estimate, rather than a precise calculation.

In conclusion, the Rule of 72 is a simple and effective tool that can help anyone estimate the time it takes for an investment to double in value. While it’s not a perfect formula, it can provide a quick and easy way to assess potential returns on investments. However, it is important to remember that the actual time it takes for an investment to double in value will depend on a variety of factors, and the Rule of 72 should be used as a rough estimate rather than a precise calculation.