Did Albert Einstein invent the Rule of 72?
Popular belief holds that Albert Einstein once said “There is no force in the universe more powerful than compound interest,” and that he in fact invented the famous Rule of 72. The Rule of 72, as you may recall, tells us how many years are required for an investment to double, by dividing the interest rate into 72.
Where does rule of 72 come from?
The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors obtain a rough estimate of how many years it will take for the initial investment to duplicate itself.
Does Rule of 72 include compounding?
The basic rule of 72 says the initial investment will double in 3.27 years. However, since (22 – 8) is 14, and (14 ÷ 3) is 4.67 ≈ 5, the adjusted rule should use 72 + 5 = 77 for the numerator. For daily or continuous compounding, using 69.3 in the numerator gives a more accurate result.
What is the difference between the rule of 70 and the Rule of 72?
The rule of 72 is a simple method to determine the amount of time investment would take to double, given a fixed annual interest rate. Instead of using the rule of 70, he uses the rule of 72 and determines it would take approximately 7.2 (72/10) years for his investment to double.