The Rule of 72, Doubling Your Money, and Investment Returns (2024)

FAQs

The Rule of 72, Doubling Your Money, and Investment Returns? ›

How the Rule of 72 Works. For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72 ÷ 10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.10^7.3 = 2). The Rule of 72 is reasonably accurate for low rates of return.

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.

It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

The rule of 72 can help you get a rough estimate of how long it will take you to double your money at a fixed annual interest rate. If you have an average rate of return and a current balance, you can project how long your investments will take to double.

The Rule of 72 predicts how long an investment will take to double based on a fixed annual interest rate. The rule is this: 72 divided by the interest rate number equals the number of years for the investment to double in size. For example, if the interest rate is 12%, you would divide 72 by 12 to get 6.

For higher rates, a larger numerator would be better (e.g., for 20%, using 76 to get 3.8 years would be only about 0.002 off, where using 72 to get 3.6 would be about 0.2 off). This is because, as above, the rule of 72 is only an approximation that is accurate for interest rates from 6% to 10%.

The accuracy of the rule of 72

The rule of 72 gives 72/9 = 8 years, which is close to the exact answer.” However, Stanford adds that the rule of 72 is only an approximation that is accurate in a range of interest rates between 6% and 10%. Outside that range, the error can vary as little as 2.4% to as much as 14%.

Rule of 72. The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.

Using the rule of 72 allows you to have a solid idea of when your investment would double just from the investment rate. Very conveniently, the number 72 divides cleanly into 1, 2, 3, 4, 6, 8, 9 and 12, allowing for a quick and simple division problem instead of your usual compound interest problem.

How to double 1000 dollars? ›

It will take approximately 15.27 years to increase the $2,200 investment to $10,000 at an annual interest rate of 6.5%.

The best way to invest $2,000 as a beginner is to invest in bonds, stocks, or yourself (through ways to increase your personal income or give yourself more time). These investments will provide a high probability of a return, if not the highest yields.

The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. Dividing 72 by the annual rate of return gives investors a rough estimate of how many years it will take for the initial investment to duplicate itself.

The Rule of 72 Calculation Example

Suppose an investment earns 6.0% each year. Q. Given the 6.0% rate of return, how many years will it take for the value of the investment to double? If we divide 72 by 6, we can calculate the number of years it would take for the investment to double.

● The Rule of 72 states that by dividing 72 by the annual interest rate, you can estimate the number of years required for an investment to double. ● The Rule of 69.3 is a more accurate formula for higher interest rates and is calculated by dividing 69.3 by the interest rate.

How Do You Calculate the Rule of 72? Here's how the Rule of 72 works. You take the number 72 and divide it by the investment's projected annual return. The result is the number of years, approximately, it'll take for your money to double.

To find out how many years it would take for a $100 investment to double at this interest rate, we divide 72 by 6.25. 72 ÷ 6.25 = 11.52 Therefore, it would take approximately 11.52 years for a $100 investment to double when the interest rate is 6.25 percent per year.