To be able to do compound interest problems in your head, the Rule of 72 gives you a lightning fast benchmark to determine how good (or not so good) a potential investment is likely to be.
The Rule of 72 is an often useful tool that can be used to approximate how long it will take to double your money at a particular interest rate:
Years to double money = 72 ÷ interest rate
So, using the rule we can see that at 8% it will take about 9 years to double your money:
Years to double money = 72 ÷ 8% = 9 years
Alternatively, the rule can tell us what interest rate is needed to double your money in a particular number of years:
Interest Rate to Double Money in N Years = 72 ÷ N
So, to double your money every 15 years you would need to earn about 4.80% per year:
Interest Rate to Double Money in 15 Years = 72 ÷ 15 = 4.80% per year
"The rule of 72 is remarkably accurate, as long as the interest rate is less than twenty percent"
No comments:
Post a Comment