Explained: Want to know how long your investment will take to double? Use Rule of 72

The Rule of 72 is a straightforward approach to estimate the time an investment needs to double, given a certain rate of return. It's a handy tool for investors to quickly grasp how their money might grow to twice its initial value.This Rule of 72 provides a fairly accurate approximation, especially when applied to investments with lower rate of returns.

It's particularly valuable for investments that generate compound interest, but may not be as effective for those based on simple interest.The Rule 72 is also regarded as an excellent educational resource, assisting investors in understanding the influence of compounding on their wealth.The Rule of 72 is particularly helpful when considering the impact of inflation on investments.

It allows investors to calculate how long it will take for their portfolio to double in value due to inflation.How to use Rule 72? Simply divide 72 by the annual rate of return. For instance, if an investor has an investment with a 9% rate of return, they can divide 72 by 9. This calculation results in 8 years, indicating that it would take approximately 8 years for the investment to double.The Rule of 72 can also be utilized to determine the required rate of return to double an investment within a specific timeframe.

To do this, divide 72 by the desired number of years. For example, if an investor aims to double their investment in 4 years, they can divide 72 by 4, resulting in a required rate of return of 18%.The following table demonstrates the rate of return needed to double an investment within various time periods, based on the Rule of 72.