# Is Rule of 72 always correct?

By Nick

### Quick Peek:

The Rule of 72 is a popular investment tool, but it’s not always accurate. It estimates how long it takes for money to double based on the rate of return, but it’s most accurate when the rate of return is stable, the investment period is long, and there are no regular contributions or withdrawals. However, it’s less accurate when the rate of return is variable, the investment period is short, or there are regular contributions or withdrawals. It should be used with other tools and strategies to make informed investment decisions.

## Is Rule of 72 Always Correct?

As an entrepreneur, you’re always looking for ways to make your money work harder for you. One of the most popular tools for calculating investment returns is the Rule of 72. This simple formula helps you estimate how long it will take for your money to double based on your rate of return. But is the Rule of 72 always correct? Let’s take a closer look.

### Understanding the Rule of 72

Before we dive into whether the Rule of 72 is always accurate, let’s quickly review what it is. The Rule of 72 is a simple mathematical formula that helps you estimate how long it will take for your money to double. Here’s how it works:

Years to Double = 72 / Annual Rate of Return

For example, if you have an investment that earns a 6% annual return, the Rule of 72 would tell you that it will take approximately 12 years for your money to double (72 / 6 = 12).

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### When the Rule of 72 Works

The Rule of 72 is a great tool for estimating investment returns over long periods of time. It’s especially useful for long-term investments like retirement accounts, where you have decades to let your money grow. In general, the Rule of 72 is most accurate when:

• Your rate of return is relatively stable over time
• You’re investing for a long period of time (10+ years)
• You’re not making regular contributions or withdrawals

### When the Rule of 72 Doesn’t Work

While the Rule of 72 is a useful tool, it’s not always accurate. There are several situations where the Rule of 72 may not give you an accurate estimate of your investment returns. These include:

• When your rate of return is highly variable from year to year
• When you’re investing for a short period of time (less than 10 years)
• When you’re making regular contributions or withdrawals

### Conclusion

So, is the Rule of 72 always correct? The answer is no. While it’s a useful tool for estimating investment returns over long periods of time, there are several situations where it may not give you an accurate estimate. As with any investment tool, it’s important to understand its limitations and use it in conjunction with other tools and strategies to make informed investment decisions.