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 is a simplified formula that calculates how long it'll take for an investment to double in value, based on its rate of return. The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%.

The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase.

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.

Rule of 72 Formula

You can calculate the number of years to double your investment at some known interest rate by solving for t: t = 72 ÷ R. You can also calculate the interest rate required to double your money within a known time frame by solving for R: R = 72 ÷ t.

How can I double my $1,000? One of the easiest ways to double $1,000 is to invest it in a 401(k) and get the employer match. For example, if your employer matches your contributions dollar for dollar, you'll get a $1,000 match on your $1,000 contribution.

How long will it take to increase a $2200 investment to $10,000 if the interest rate is 6.5 percent? ›

Final answer:

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

Errors and Adjustments

The rule of 72 is only an approximation that is accurate for a range of interest rate (from 6% to 10%). Outside that range the error will vary from 2.4% to 14.0%. It turns out that for every three percentage points away from 8% the value 72 could be adjusted by 1.

The Rule of 72 indicates how fast your money will double at a given rate of return. 2. When you divide 72 by the estimated annual rate of return, you get the number of years it will take for your money to double. So, if you are getting 8% return annually, it would take 72/8 = 9 years to double.

Rule of 114

The mathematical formula for Rule of 114 is similar to Rule of 72. For this, take the number 114 and divide it with the rate of return of the investment product.

To find the approximate number of years needed to double an investment, divide 72 by the interest rate. In this case, with an interest rate of 6.25%, divide 72 by 6.25, which is approximately 11.52. Therefore, it would take approximately 11.52 years to double the $100 investment.