RULE OF 72

This simple rule is used to answer the below 2 questions.

1. If i invest now, in how many years do i get to see the value doubled, if the return is 7% per annum?
2. If i want to invest and my holding period is 8 years, what return on investment would i be looking for?

Question No. 1 can be answered by applying the simple Rule of 72.

72 / 7 , and that will give us 10.28 (nearest to 2 decimal points) years.

It means that if you invest in a fund that generates 7% return per annum, your capital ( any amount) injected would grow double in 10.28 years (note: the number could move either way too,i.e. either grow of decline)

Question No.2 also can be solved using Rule of 72.

72/ 8 years ,and that will give us 9% per annum rate of return.

It means that if you want to see your capital  to double (or reduce to halve) in 8 years, you should put all your money in a product that generates 9.00% return per annum.