The Rule of 72 is a simplified formula that calculates how long it will take for an investment to double in value, based on its rate of return. The Rule of 72 is a simple way to determine how long it will take for an investment to double given a fixed annual interest rate. By dividing 72 by the annual rate of return, investors get a rough estimate of how many years it will take for the initial investment to double. The Rule of 72 is a calculation that calculates the number of years it takes to double your money with a specific rate of return.
If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. Just take the number 72 and divide it by the interest rate you're hoping to get. That number gives you the approximate number of years it will take for your investment to double. The rule of 72 is a mathematical principle that estimates the time it will take for an investment to double in value.
It is a well-known fact that inflation is a silent destroyer of wealth that reduces the purchasing power of money over time. The Rule of 72 can also help you calculate the effect of inflation on your investments. The rule of 72 can be used to calculate how long it takes for a portfolio to halve its purchasing power value due to inflation. Let's look at this with a practical example.