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Power of Compounding benefits: The Rule of 72

ruleof72.jpgDo you want to know how long it will take to double your money with a simple calculation ? A Quick and Easy Way to Calculate Compound Interest is The Rule of 72

The Rule of 72

The rule of 72 says that in order to find the number of years required to double your money at a given interest rate, you can just divide the interest rate into 72.For example, if you want to know how long it will take to double your money at eight percent interest, divide 8 into 72 and get 9 years.

The rule of 72 is remarkably accurate, as long as the interest rate is less than 20%.

You can also run it backwards. If you want to double your money in six years, just divide 6 into 72 to find that it will require an interest rate of about 12 percent.

Practical Examples of the Rule of 72 in Action

Q: Investor needs to double his money in seven years to reach his financial goals. What rate of return must he earn to do this successfully?

Sol: 72 divided by 7; the answer, 10.2857%, is the amount a person need to earn on an after-tax basis to successful reach his goal.

Q: Investor is earning a 9% on the investments. How long will it take to double the money?

Sol: To calculate the number of years necessary to double the money using the Rule of 72, divide 72 by 9; the answer, 8, is the number of years it will take to double.

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