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The Rule of 72 is a helpful trick to quickly estimate how long it will take to double an investment that has compound interest. To calculate the doubling time, one simply divides 72 by the compound interest rate.
If the compound interest rate is a yearly interest rate, the time to double the investment, is also calculated in years. This is the case here, if the compound interest rate it a monthly interest rate, then the result of The Rule of 72, is in months, not years.
Although The Rule of 72 is a very quick, and simple approximation, it is exactly that, just an approximation. The exact doubling rate is more difficult to calculate as it includes the use of natural logs, however weve included the exact time to double an investment here.
You can see that The Rule of 72 is a very good approximation for interest rates that are fairly low, about under 12%, however as the interest rate grows, the margin of error for The Rule of 72 also grows.
Calculate the time it takes for an investment to reach a particular gain.
This calculation finds the exact number of years it will take for an investment with a specific yearly compound interest rate to reach a wanted investment gain.
The Rule of 72 only works for approximating the doubling time of an investment, it works for no other gains. This will work for doubling time, as well as any other gain, such as tripling time.