{"id":4212,"date":"2024-09-27T15:29:00","date_gmt":"2024-09-27T13:29:00","guid":{"rendered":"https:\/\/valueinvestments.ch\/lexikon\/what-is-the-rule-of-72\/"},"modified":"2025-01-08T10:45:49","modified_gmt":"2025-01-08T09:45:49","slug":"rule-of-72","status":"publish","type":"lexikon","link":"https:\/\/valueinvestments.ch\/en\/lexicon\/rule-of-72\/","title":{"rendered":"Rule of 72"},"content":{"rendered":"\n

The formula for the rule of 72<\/h2>\n\n
\"Illustration<\/figure>\n\n

where: interest rate = annual return on an investment<\/p>\n\n

The rule of 72 can be applied to anything that grows at a certain rate<\/strong>, e.g. population, macroeconomic figures, fees<\/a> or loans. If the gross domestic product<\/a> (GDP) grows by 2% annually, the economy is expected to double in 72 \/ 2 = 36 years. <\/p>\n\n

In terms of fees<\/a> eating into investment gains<\/a>, the rule of 72 can be used to show the long-term impact of these costs. An investment fund that charges 2% in annual fees will reduce the investment capital by half in about 36 years. A borrower paying 10% interest<\/a> on their credit card (or any other form of credit that charges compound interest<\/a> ) will double the amount owed in around seven years. <\/p>\n\n

The rule can also be used to determine the time it takes for the value of money to halve due to inflation<\/a>. If inflation is 3%, then the purchasing power of money will only be worth half in about 24 years (72 \/ 3 = 24). If inflation rises from 3 % to 6 %, an investment is expected to lose half its value in 12 years instead of 24 years. <\/p>\n\n

In addition, the rule of 72 can be applied to all types of maturities as long as the return<\/a> accrues annually. If interest is 6% per quarter (but interest only accrues annually), then it will take (72 \/ 6) = 12 quarters or 3 years to double the principal. If the population of a nation grows at a rate of 0.5 % per month, it will double in 144 months or 12 years. <\/p>\n\n

What can we learn from the rule of 72? <\/h2>\n\n

The rule of 72 shows that it is extremely important for successful investing to understand the effect of compound interest<\/a> in order to double your assets. Costs, inflation<\/a> and, above all, the annual return<\/a> are crucial to successful investing. To find out more, it is advisable to consult an independent asset manager<\/a> or financial advisor. <\/p>\n","protected":false},"template":"","class_list":["post-4212","lexikon","type-lexikon","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/lexikon\/4212","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/lexikon"}],"about":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/types\/lexikon"}],"wp:attachment":[{"href":"https:\/\/valueinvestments.ch\/en\/wp-json\/wp\/v2\/media?parent=4212"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}