The "Rule of 72" is simply a means for estimating the return on your investment over time. Specifically, how often your money will double based on the average rate of return for your investment. The time, in years, is determined by dividing 72 by the rate of return. For example,

• 72 divided by 3% = 24 years to double your money
• 72 divided by 6% = 12 years to double your money
• 72 divided by 12% = 6 years to double your money

The key to this concept is called the "Magic of Compound Interest", meaning that all of your interest (and dividends) are reinvested so that a single investment can increase much faster over time. Through this concept, you can earn interest-on-your-interest as well as on your principal, rather than interest solely on your principal (simple interest).

The example below shows how you can use these concepts to quickly and easily estimate the result of investing $2,000 and achieving different average rates of return. Remember from the Rule of 72 that money invested at 3% will double every 24 years, while money invested at 12% will double every 6 years.

As you can see from the table above, the keys to achieving financial independence are time and rate of return. Even with time on your side, the rate of return is the most critical aspect in terms of achieving your financial goals. Without sufficient time, your only alternative is to invest a great deal more or extend the time, which could mean delaying your financial goals, such as retirement. The real solution is to start today, even with a small amount ($1 a day), and invest for as long as you can.

The Rule of 72 provides a simple means for estimating how much your investment will grow over time. It should be noted that this concept does not allow for taxes and inflation; investing in a retirement account will help significantly, and inflation must be factored when determining how much you really need to achieve your long-term financial goals.

(Article - Rule of 72 can aid in predicting value of investment)