The Rule of 72: What is it & How to use it in investing?
What is the Rule of 72?
What is the Rule of 72 in finance? Well, the definition is pretty straightforward. The Rule of 72 calculates the estimated number of years it takes to double your money at a specific rate of return. So, here’s an example of the Rule of 72.
If your account earns 4%, you’ll want to divide the percentage by 72—this will show you the number of years it’ll take for your money to double. In the case of this example, it’ll take 18 years.
You can also use this calculation if you’re interested in learning more about inflation. By using the Rule of 72, you’ll be able to see the number of years until the initial value of an item is cut in half.
The Rule of 72 is a part of a more complex calculation; thus, the answer you’ll receive won’t be exact. Typically, the most accurate results from the Rule of 72 are based on 8%. The further away you go from 8% in either direction, the less accurate the results are. However, it’s still a good formula on hand to have to help you understand how your money may grow from your investments.
How to use the Rule of 72 in investing
Let’s use the example of the Stake & Make 9% bot. This bot stakes your funds in USDC and other crypto assets, giving you a 9% annual return that is paid out every week. It’s a relatively low-risk investment with maximum returns. Let’s see how long it’ll take to double your money. Using the Rule of 72, the calculation would go as follows:
- Rule of 72 = 72 / interest rate
- Rule of 72 = 72 / 9% interest rate
- Rule of 72 = 8 years
The calculation shows that using our example, it would take 8 years to double your investment at 9% annual interest. So, if you were to invest €10,000 in 8 years, you would receive €20,000. Naturally, the more money you invest into your asset, the more you’ll make in returns.
Who uses the Rule of 72?
While you may think big-time investors aren’t paying attention to simple rules and reminders, they do. For investors who need quick estimations, the Rule of 72 gives you an approximate understanding of how long it’ll take for your money to double. While we suggest taking time when choosing where you’ll invest your money, sometimes there are deals you just need to grab.
Are there disadvantages to the Rule of 72?
Nothing is perfect. So yes, there are some (but very few) disadvantages to the Rule of 72. Here are some of the disadvantages to keep in mind:
- The Rule of 72 is only an estimation. For exact numbers, it’ll require you to do further and more precise calculations.
- The Rule of 72 does not consider compounding, which may impact the time it takes for your investment to double.
Despite this downside, the Rule of 72 is a handy tool when estimating the time it’ll take for your investment to grow.
Whether you’re interested in investing in stocks, crypto, or bonds, you can use the Rule of 72 to help you make the right investment for your portfolio.
This blog is for educational purposes only. The information we offer does not constitute investment advice. Please always do your own research before investing. Any views expressed in this blog and by BOTS do not constitute a recommendation that any particular cryptocurrency (or cryptocurrency token/asset/index), portfolio of cryptocurrencies, transaction, or investment strategy is suitable for any specific person.