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What is Rule No. 72 in Finance?

What is Rule No. 72?

Rule No. 72 is a rule of thumb for determining the length of time it will take to double your money, given a specific rate of return. The formula is simple: divide 72 by the rate of return you expect to receive from an investment. The resulting number will tell you how many years it will take to double your money. For example, if you expect to receive a 10% return on an investment, it will take roughly seven and a half years (72/10) to double your money.

What is the History of Rule No. 72?

Rule No. 72 was first proposed by the English mathematician John Leslie in 1823. It was later refined by the American economist Irving Fisher, who suggested that the calculation should be based on the natural logarithm of the interest rate, instead of the interest rate itself. This refinement is known as the Rule of 72. Since then, the Rule of 72 has been adopted by investors and financial planners as an easy-to-understand formula for calculating the length of time it will take to double your money.

How Can Rule No. 72 Help Me?

Rule No. 72 is a useful tool for investors and financial planners. By using the Rule of 72, you can quickly and easily estimate how long it will take to double your money, given a specific rate of return. This can help you make more informed investment decisions, as well as plan for retirement.

Are There Any Disadvantages to Rule No. 72?

The main disadvantage of Rule No. 72 is that it is based on the assumption that the rate of return remains constant throughout the investment period. In reality, this is rarely the case. Rates of return can vary greatly over time, and the actual length of time it takes to double your money can be significantly different from what Rule No. 72 predicts. For this reason, it is important to use Rule No. 72 as an estimate, rather than an exact calculation.

Conclusion

Rule No. 72 is a useful tool for investors and financial planners. By using the Rule of 72, you can quickly and easily estimate how long it will take to double your money, given a specific rate of return. While the Rule of 72 is useful for making educated guesses, it should not be used as an exact calculation due to the fact that rates of return can vary over time.