What is the rule of 72 in investing: 5 things to know
1.The Rule of 72 indicates how fast your money will double at a given rate of return.2.When you divide 72 by the estimated annual rate of return, you get the number of years it will take for your money to double. So, if you are getting 8% return annually, it would take 72/8 = 9 years to double.
3.This rule gives a fair estimate if your portfolio return is within the range of 4-15%.
4.One can also use this to compute the returns a portfolio should generate to double money in a given time period. If you want to double it in five years, the portfolio should be invested such that it yields 72/5=14.4%.
5.Though the Rule of 72 isn’t the most accurate calculation, it gives a good idea to investors to project their portfolio values.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
