Rule 72 gives you an approximation of the number of years required for your investment to double.
Every investor strives to grow their wealth in the shortest possible time. The time it takes to double your money depends on the returns generated by your portfolio. Have you ever wondered about the timeframe required for your corpus to double? There is a simple rule of thumb that allows you to gauge the pace at which your money will double based on a given rate of return.
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What is Rule 72?
Rule 72 is a simple calculation that involves dividing the number 72 by the annual interest rate earned on your investment. This formula gives you an approximation of the number of years required for your investment to double. Rule 72 offers an approximate indication rather than an exact measurement.
Although calculators and spreadsheet applications such as Microsoft Excel provide accurate calculations for determining the exact time it takes to double an investment, Rule 72 provides the estimated number of years it will take for your money to double.
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How does Rule 72 work?
To determine how long it will take for your investment to double, you can divide 72 by the expected rate of interest. Imagine you have invested in a Fixed Deposit with an annual interest rate of 6.25 per cent. In this scenario, it would take approximately 11 years for your investment to double. This result comes as we divide 72 by the interest rate of 6.25 (11.52), which represents the number of years it would take for your investment to double.
How much to invest?
To double your money, it is crucial to determine the required investment amount. By making slight adjustments to the formula, you can calculate the necessary investment within a specific timeframe. For instance, if you aim to double your money in 3 years, you would need an annual return of approximately 21 to 24 per cent (72/3 years).
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Similarly, if you want to double your money in 5 years, you should target an interest rate of at least 14.4 per cent (72/5) per year. To double your money within 10 years, an interest rate of around 7.2 per cent per year would be necessary.
