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Finance Dictionary and Glossary of Investment Terms
Rule of 72
A formula used to determine the amount of time it will take for invested money to double at a given compound interest rate, which is 72 divided by the interest rate.
The estimation of doubling time on an investment, for which the compounded annual rate of return times the number of years must equal roughly 72 for the investment to double in value.
A quick way to determine how long it take for some types of investments to double. To use the rule of 72, simply divide 72 by the yield of the proposed investment. If the investment yields 12 percent annually, it would take only six years to double your money. At 10 percent, it would take about seven years.
A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.