Editing Rule of 72 (section)

== Using the rule to estimate compounding periods ==

To estimate the number of periods required to double an original investment, divide the most convenient "rule-quantity" by the expected growth rate, expressed as a percentage.

*For instance, if you were to invest $100 with compounding interest at a rate of 9% per annum, the rule of 72 gives 72/9 = 8 years required for the investment to be worth $200; an exact calculation gives [[Natural logarithm of 2|ln(2)]]/ln(1+0.09) = 8.0432 years.

Similarly, to determine the time it takes for the value of money to halve at a given rate, divide the rule quantity by that rate.

*To determine the time for [[money]]'s [[Purchasing power|buying power]] to halve, financiers divide the rule-quantity by the [[inflation rate]]. Thus at 3.5% [[inflation]] using the '''rule of 70''', it should take approximately 70/3.5 = 20 years for the value of a unit of currency to halve.<ref name=Meadows>[[Donella Meadows]], ''Thinking in Systems: A Primer'', [[Chelsea Green Publishing]], 2008, page 33 (box "Hint on reinforcing feedback loops and doubling time").</ref>

*To estimate the impact of additional fees on financial policies (e.g., [[mutual fund fees and expenses]], loading and expense charges on [[variable universal life insurance]] investment portfolios), divide 72 by the fee.  For example, if the Universal Life policy charges an annual 3% fee over and above the cost of the underlying investment fund, then the total account value will be cut to 50% in 72 / 3 = 24 years, and then to 25% of the value in 48 years, compared to holding exactly the same investment outside the policy.