Rule of 72

How long to double your money?

To answer this question, all you need to know are:

(i) the interest rate and 

(ii) 'the rule of 72'.

It works like this: 

The number of years it takes to double your money  X  the interest rate = 72. 

Example 1:

Suppose an investment earns 7.2% interest. Then it will take 10 years to double your money. Why? 

Because 10 years  x  7.2%  =  72.

Of course, it is also true that

72 / 7.2% = 10 years.

Example 2:

If you earn 10per cent per year, it takes 7.2 years to double your money. 

72 / 10% = 7.2 years.

Example 3:

You can expect a lot of fluctuations when you invest in the stock market.

Assuming over the long run, you expect to earn about 12 per cent per year from shares.

By the same rule, it means your money in shares will double every six years. 

72 / 12% = 6 years.

Example 4:

In another application of the rule of 72. Say, you earn 4 per cent interest in your retirement account.

At 4 per cent, you double your money in 18 years 

72 / 4% =  18 years