Finance Basics

The Rule of 72

There is an often misquoted “rule of 72” and it goes like this…..

If you want to know the number of years needed to double money at a given rate of return, you just divide 72 by the rate. For example, if you have $100 invested at 8% and you want to know how long it will take before its becomes $200, just divide 72 by 8 which gives you 9 years. For reasons to technical to get into here, it’s really the rule of 69.3. The problem is that everyone can remember “the rule of 72” while the “rule of 69.3” just doesn’t have the same ring to it.   Also it really doesn’t make that much of a difference. Look at the table below to see how small changes in rate can have big a big impact on return. Increasing the rate that your investments earn from 3% to 6% more than halves the time needed to double your money. As we discussed earlier – you can increase returns by just decreasing investment costs. 

Rate of Return             Years to double investment

1%                                           69.3

2%                                           34.7

3%                                           23.1

4%                                           17.3

5%                                           13.86

6%                                           11.55

7%                                           9.9

8%                                           8.7

9%                                           7.7

10%                                         6.9

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