MENU

The Wonderfully Simple Rule Of 72

The Rule of 72 lets you estimate, with a fair degree of accuracy, how long it will take a lump sum investment to double at a given rate of interest.

Whilst it may not be 100% accurate, it gives you a good back-of-the-envelope rule that may keep you from celebrating 5% investment returns.

And it’s a blast for figuring how rich you will be in 20 or 30 years.

The rule is simple. Divide 72 by the rate of interest and you have approximately the number of years of doubling your investment:

72 / x% = years to doubling

Like any rule of thumb, this one has its limitations, and in this case is increasingly inaccurate once you get much above 15%, although it’s still a pretty good measure.

And frankly, if your investments are compounding regularly at above 15%, the minor inaccuracies will be irrelevant anyway.

Here’s an example:

$10,000 invested at 8.5% will take 72/8.5 years to double = 8.47 years.

Looked at another way, if you know the doubling time, divide it into 72 to get the growth rate.

Using the same example as above:

72 / 8.47 years = 8.5%

This idea of doubling is a very powerful one. It might be stating the obvious, but the quicker you can double your money, the more you’ll end up making.

For example, in close to 34 years, $10,000 doubling every 8.47 years will turn into $160,000.

But if you managed to make a compounded annual average return of 11% per annum, in close to 33 years your $10,000 would turn into $320,000.

Didn’t we tell you this would be fun?

For even more fun, be sure to check out The Miracle of Compound Returns.

Join The Investor Revolution

In our free email, Take Stock, we explore investing strategies, pontificate on the state of the global economy and what it might mean for your share portfolio, plus much more.

Take Stock is an integral part of The Motley Fool’s Investor Revolution. If you’d like to join us on our campaign to empower individual investors, click here to enter your email address.

As you would expect from The Motley Fool, we totally respect your privacy, and we’ll never sell your email onto 3rd parties.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!