Guidance and Knowledge for Value Investors
The rule of 72 is a simple formula to estimate the amount of time it takes for investment to double in value given an interest rate of return. The rule of 72 is most effective for interest rates between 4 and 15% and for use with annual compounding. The success of the number 72 lies in its divisor attributes; i.e. it is divisible by 1, 2, 3, 4, 6, 8, 9, 12, 18, 24, 36.
A quick and easy way to determine the doubling of value for a given sum based on an interest rate is the Rule of 72. This simple formula has three factors. The first is the interest rate; the second is the amount of time in years to double the value and of course the number 72.