The Rule of 72

How it Works

The rule of 72 is an easy formula that can be used to estimate the number of years required to double the invested money at a given annual rate of return. 

The rule is great for mental calculations to quickly indicate an approximate value. It may also be useful to compute the annual rate of compounded return from an investment given how many years it will take to double the investment.

Example

What Can the Rule of 72 Tell You?

A shortcut for:

  • Time it takes to double your money
  • Compare investment opportunities
  • Useful in understanding the effect of compound interest
  • Apply to inflation, GDP, population or anything that grows!

How to calculate the Rule of 72

By dividing 72 by the annual rate of return, you can obtain a rough estimate of how many years it will take for the initial investment to duplicate itself.

Calculations

If you’re the technical type and want to know why the rule of 72 works, then go here. This will give a lot of the X, Y’s and Z’s or is it P’s and K’s? After all its algebraic. Remember, treat your money with emotion you’re certain to lose the money game. Treat your money with math and science and you’re sure to WIN the money game.

Leave a Reply

Your email address will not be published. Required fields are marked *