What is the "Rule of 72" commonly used for?

The "Rule of 72" is a simple formula used to estimate the number of years required for an investment to double in value based on a fixed annual rate of return. It works by dividing 72 by the annual interest rate (expressed as a percentage). For example, if an investment earns an 8% return, you would calculate 72 divided by 8, resulting in 9 years for the investment to double.

This rule is widely used in personal finance and investing because it provides a quick and easy way for individuals to gauge the effectiveness of their investments without complex calculations or financial tools. The Rule of 72 works effectively for interest rates that are typical for various investment vehicles, making it a useful guideline for investors seeking to understand the power of compounding over time.