Most people who have an interest in investing understand the power of compounding — putting something away today at a certain rate of interest, will reap a significant benefit tomorrow simply due to the power of compound interest.

One can use a shortcut method to figure out exactly how much return you would make due to compounding by utilizing the rule of 72:

• Simply put, if you earn 6% per year and let it compound, your investment would double in 12 years (72/6=12).
• If you earn 8% per year, it would double in 9 years and so on.

By using the rule of 72, you can solve for 1 of the 2 variables — if you know return per year, you can figure out the duration taken to double the investment. If you know the duration to double, you can figure out the % rate.

Try it. It works. Its an approximation but an effective tool. As they say, better to be approximately right than precisely wrong!