Rule Of 72
September 3, 2007 by PF Journal
Filed under Personal Investing
The Rule Of 72 is a simple and quite common financial rule which simply states that your investment will double it’s initial amount every 72 periods that it is compounded. The formula is written like this: 72/r – where r equals the rate of return per period.
In other words, if you have an initial amount such as $1000 and you have a fixed rate of return rate of, say, 20% p.a. your initial $1000 will double itself in just over three and a half years eg. 72/20 = 3.6.
This example is a very simple calculation that assumes you use the effective rate of return.
This sort of financial equation is very handy to use when you need to compare investment opportunities or loans (such as home loans).
The Rule Of 72 is commonly used in all areas of personal finance and real estate investing and stock investing.
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