Tuesday, January 15, 2008

Rule of 72

Have you ever thought of how long it takes to double your investment with a certain rate of returns? I meant without the use of calculator can you compute it in your mind? Certainly I don’t think so not unless you are a mathematician genius.

One of the first basics of investing I have learned is the Rule of 72. All you need to remember is just this magic number 72 and you can roughly estimates how many years it takes to double your investment with an annualised and compounded rate of returns.

For example, an investment at 1% returns will take about 72 years to double while an investment of 3% returns will take about 24 years to double the amount. Simply divide the number 72 with its returns and you will get the number of years to double your investment. Simply amazing!

However the accuracy of the estimation tends to get worsen when the returns get larger. You can compare the result with any online calculator to find out the discrepancy. Try it out.

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