The Rule of 72
One quick way to estimate your potential return is to use the Rule of 72. Just divide 72 by the expected annual rate of return to get the number of years it will take your money to double in value. For example, if your investment is expected to grow by 9 percent annually: 72 ÷ 9 = 8. Your investment will double in approximately eight years.
The same rule can be used to calculate inflation. If inflation is at 6 percent, divide 72 by 6. You can expect your money to be worth half as much in 12 years.
Note that even though the rate is 6 percent, you are not dividing by 0.06, as you would in other percentage calculations. You are using the whole number.
The Rule of 72 works fairly well for the range from six to 10. Outside that range, there are additional calculations needed; it can be more efficient to use an online calculator.
|
Rate of Return (%)
|
|
Divide into
|
Approximate Number of
Years to Double
Investment
|
|
6
|
|
72
|
12 years
|
|
7
|
|
72
|
10.3 years
|
|
8
|
|
72
|
9 years
|
|
9
|
|
72
|
8 years
|
|
10
|
|
72
|
7.2 years
|
Check Your Knowledge
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If Valeria had a savings account that offered a 9 percent rate of return, how long would it take for her investment to double in value?
- Five years
- Eight years
- 10 years
- 25 years
A 9 percent rate of return would be divided into 72, so 72 ÷ 9 = 8 years.