The Rule of 72
Here’s a neat little trick. It’s a simple way to calculate the amount of time and/or the interest rate necessary to double an investment, and it’s called The Rule of 72.
Let’s say you know one of the variables: time.
If you want to calculate what interest rate is necessary in order to double your money double in 10 years, simply Take 72 and divide it by 10.
At 7.2% your money will double in 10 years. It’s that simple.
8 years? 72 divided by 8 = 9%
It works!
It also works with interest rate as the variable:
You have an opportunity to earn 6% on an investment. Now you know that it will double in 12 years.
4% doubles in 18 years.
These calculations are very close approximations (7.177% doubles in 10 years), assume compounding interest, and become less accurate as the interest rate rises.
