Finance
The Rule of 72
Last modified on 2009-06-04 09:39:36 GMT. 2 comments. Top.
by Edward Galstyan
So you’re saving money — care to learn an easy finance trick?
The rule of 72 is an easy way to determine how long an investment might take to double with a given, fixed annual rate of return. To figure out a rough estimate of how many years it will take an investment to double, use the following formula:
Number of years investment will take to double = 72/Given Interest Rate
Let’s try some simple numbers out.
Rule of 72 Interest Rate Number of Years to Double
72 1% 72 years
72 2% 36 years
72 3% 24 years
72 4% 18 years
72 5% 14.4 years
72 6% 12 years
Example: at 6% it will take 12 years for $1 to double to $2 or $100 to double to $200.
You can also move the formula around to figure out what interest rate you must invest in to double your money.
Formula: 72/Number of years = interest rate you need to double your money
Example: You want your money invested to double in 10 years
72/10 = 7.2% Interest Rate to double your investment.
The Bottom Line:
If you want a quick, easy, rough estimate — you may use the Rule of 72
