What does the Rule of 72 mean? It is rule stating how long it will take to double your money at any given interest rate. You divide the compound return by 72. This will give you an approximation of the number of years for your investment to double.
Example:
7% interest rate formula: 72/7=10.28 (it will take 10.28 years for your investment to double with a 7% interest rate)
Note: We would be fortunate today as consumers receiving this kind of return on GICS or Dividend Stocks.
12% interest rate formula: 72/12=6 (it will take 6 years for your investment to double with a 12% interest rate)
24% interest rate formula: 72/24=3 (it will take 3 years for your investment to double with a 24% interest rate)
Note: The credit card companies make this kind of return easily when consumers have outstanding balances on their credit cards and only pay the minimum. As you can see your debt will double in less than 3 years with a 24% credit card interest rate. The higher the rate the quicker the doubling of debt.
Sam Latella