No. 96 - The Rule of 72

One great way to learn the power of compound interest is to utilize the Rule of 72.

The Rule of 72 says that if you divide 72 by the rate of expected return on an investment, the result is the number of years it will take your investment to double.

For example, you invest $1,000 and expect to earn five percent per year, compounded annually. Divide 72 by 5, and the quotient is 14.4. Therefore, your $1,000 will grow to $2,000 in 14.4 years.

The Rule of 72 shows how important even a one percent difference can be over time. An investment with a five-percent return would take 14.4 years to double; an investment with a six-percent return would take only 12 years to double – a two and a half year difference!

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