Why Should You Know [Rule 72]?

Do you know what is it meant by Rule 72? Essentially, it is an easy way to determine how long an investment needs to double its value. Although the outcome is not precise, it certainly gives us a quick way to assess the periods needed to double our money.

For example, if you could achieve 20% consistently, you need about 3.6 years to double your money. How did I calculate that? Well, it's pretty easy - Just use 72 divided by 20. I guess I have enlightened some of you.

Rule 72 is important for me to assess if an investment or a person's track record is good in another angle. If an investment generates 8% per annum consistently, it needs 9 years to double in value, which is slow.

What about if you intend to double your money in 5 years' time? How much do you need to make per year? Well, the calculation can be done by 72 divided by 5 = 14.4% or 15% per year.

Hope you learn something new today. Happy Value Investing!