Rule of 72
Dave says that the Rule of 72 is true. It's not perfect, but it does work.
QUESTION: Sally asks if the Rule of 72 is true. Dave says yes, and breaks down the formula for her.
ANSWER: The Rule of 72 is a mathematical equation. If you take a lump sum and invest it at an interest rate, you divide that interest rate into the number 72 and that is how many years it will take your money to double. For example, if you invest at 7.2 percent, then you divide 7.2 into the number 72 and that equals 10. That means it would take about 10 years for your investment to double.
The rule is true, but it is most accurate between 3 and 15 percent. It’s a rough and dirty way to do investment math quick in your head. It’s not perfect, but it does work.