Rule of 72

Rule of 72

Rule of 72 is another rule of thumb; a must-know to both, clients and prospects who are looking for some help with financial planning.  

So what is the Rule of 72:

It is a very quick and simple piece of arithmetic which gives you almost accurate indication of how your investments may grow depending on the level of profit rate or investment return they are receiving annually.  In effect, it is a shortcut through plenty of detailed calculations to give a fairly decent estimate of progress towards a lump sum goal. 

To do the calculation, all you have to do is divide 72 by your annual investment growth rate or profit rate.

For example, if you had savings that were returning a hypothetical 6% a year, it would take 12 years for your investments to double in value (72/6 = 12).

To know how much return should I have to double my investment in 12 years?

(72/12=6), I need to earn 6% profit rate annually to double my investment principal in 12 years.