The Rule of 72

Oct 17, 2018 | Tony Byrne's View

No blog on the subject of investments would be complete without mention of the Rule of 72. So what exactly is the Rule of 72?

Albert Einstein is attributed with stating that “The most powerful force in the universe is compound interest.” Whilst it is disputed that Einstein ever actually said that there is no doubt that it is something he could have said. Let me explain why.

The Rule of 72 is simply a rule of thumb method for showing how long it takes to double your money assuming a given interest rate or return on investment (ROI). You simply divide the return (or interest rate) into 72 and the result is the number of years it takes to double your money. So assuming an interest rate of 6% it takes 12 years to double your money (72÷6). At an investment rate of return of 12% your money doubles in just half the time i.e. 6 years (72÷12)!

Mathematicians have argued that it should really be the Rule of 69 because this gives you a more accurate result. However, the number 72 is very useful to use as a rule of thumb and when you don’t have a calculator because it is an easy number to divide into. Let me demonstrate the power of compounding by giving you some examples in the table below. These are all based on an assumed investment of £10,000.

Interest rate % Number of years to double Final value £
2% 36 £20,000
4% 18 £20,000
6% 12 £20,000
8% 9 £20,000
9% 8 £20,000
12% 6 £20,000

Interestingly the number 114 can be used for calculating how many years it takes to triple your money and 144 for quadrupling it. So for tripling your money the figures are as follows;

Interest rate % Number of years to triple Final value £
2% 57 £30,000
4% 28.5 £30,000
6% 19 £30,000
8% 14.25 £30,000
9% 12.67 £30,000
12% 9.5 £30,000

For quadrupling your money the figures are as follows;

Interest rate % Number of years to quadruple. Final value £
2% 57 £40,000
4% 28.5 £40,000
6% 19 £40,000
8% 14.25 £40,000
9% 12.67 £40,000
12% 9.5 £40,000

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