Today I thought I’d share a fun tool used by investors to quickly work out either:
- The number of years it takes to double your investment at a given percentage return,
- Or the percentage return required to double your investment in a given number of years
The Rule Of 72 is not precise, but it’s good enough in most scenarios.
To work out the number of years it takes to double your investment, divide the number 72 by the annual percentage return of the investment.
For example, an investment with a 15% annual ROI takes (72 / 15) ~5 years to double.
The Rule Of 72 can also be used to calculate the number of years to double your investment.
For example, to double your investment in 5 years you need to get (72 / 5) ~15% ROI.
Personally I don’t know anyone who uses the Rule Of 72, because the results are easier to remember than doing the maths, and any seasoned investor knows these numbers well anyway.
The Rule Of 72 is a fun tool, but be aware that it does become inaccurate beyond rates of return in a specific band. I’ll leave it to someone else to work out what those rates are, and post them in the comments below.