A mental shortcut to estimate the power of compound interest.
Historical S&P 500 is ~10%
The Rule of 72 is a quick way to estimate compounding. At 8%, your money doubles every 9.0 years.
Resulting in $400,000
Doubling Time
9.0 Yrs
Growth Factor
8x
The Rule of 72 is a simple mathematical formula used to estimate the number of years required to double the invested money at a given annual rate of return. It is one of the most famous "rules of thumb" in finance.
72 / Rate = Years
By dividing 72 by your annual interest rate, you get a remarkably close estimate of how many years it will take for your principal to double.
72 is chosen because it has many divisors (2, 3, 4, 6, 8, 9, 12) and because it provides a more accurate approximation for common interest rates (5-12%) than the natural log formula it simplifies.
Wealth isn't built in the first double, but in the third and fourth. If you start with $10,000, after one double you have $20,000. After four doubles, you have **$160,000**. This is why starting early is the most important factor in US stock market investing.
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