There is a rule of investing known as the "rule of 72". It's a simple yet powerful rule of thumb that states that a principal sum will double at a given annual compound rate of return in the number of years expressed by the formula: 72/rate = years to double.

Take an example. Say you can earn 8% annually (ignoring taxes, or after tax, or in a tax-deferred account). 72 divided by eight equals 9, so it should take about nine years for your investment to double at an 8% compound rate of return.

Another example. Your rate of return is now 4%. It takes 18 years for your initial stake to double at that rate (72/4 = 18).

The following table illustrates the difference between compound interest at 10%, compared to simple interest at 10%, on a starting investment of $100. The difference could arise if, for example, you are spending the compound portion of the earnings each year (which gives rise to the simple interest example) compared to reinvesting all the earnings each year (which is the compound interest example):

     Compound  Simple


1 year	     110	     110

2 years	     121	     120

3 years	     133	     130

4 years	     146	     140

5 years	     161	     150

6 years	     177	     160

7 years	     195	     170

8 years	     214	     180

9 years	     236	     190

10 years	     259	     200

Note that the rule of 72 predicts that your initial $100 will double after 7.2 years. That's pretty close - when you look at the above table it's at $195 after 7 years, so shortly thereafter it would hit $200.

The rule of 72 is definitely one rule you want to be on the right side of. When it works for you, compound interest is a wonderful thing. You earn interest on your initial principal, and you earn interest on the interest that you've already earned. You can almost hear it ticking along.

But when it works against you, you feel like Sisyphus. You keep on rolling that rock up the hill, and it comes right back down to the bottom. You spend all your time paying interest and can't chew into the principal. Or, if you're not even paying the interest off each month, it compounds against you. It's a horrible feeling.mortgage calculator