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The Rule of 72 is a mathematical short cut for estimating how long it could take an investment to double in value. You simply divide the growth rate of the investment into 72. The result is the approximate number of years it may take the money to double. Example: You have an annuity at 7% interest. 72 divided by 7 equals 10 years that it would take your money to approximately double. An important point that is often overlooked: The Rule of 72 works only for tax-deferred or tax-exempt investments. The Rule of 108 is a similar shortcut for taxable investments.
Divide the growth rate of the investment into 108 and the result is
the approximate number of years it could take the money to double
(assuming a 33 percent tax rate). Following the above example: You
have a C.D. invested at a taxable interest of 7%. 108 divided by 7
equals 15 years or 50 percent longer than the tax-advantaged
alternative. |
     
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