The Cool Rule of 72
Your trusty Herald Square #2 pencil is busted and your smartphone’s battery has died. You need to find out approximately how long it will take for an investment to double in value. What do you do??? Use your brain and the “Rule of 72”.
Divide 72 by the compounding interest percentage you are getting on that investment. My free brokerage account shows that my stocks have gone up 12% in the past year. Not too shabby! 72 divided by 12 tells me at this rate it will take 6 years for the portfolio to double.
This is a ballpark figure, but very close. Therefore, it is close enough to use when hanging with the big boys if they start talking all highfalutin Wall Street chitter-chatter.
So $1,000 will be worth $2,000 after six years. If I let it ride and get the same return, that $1,000 will be worth $64,000 after 36 years! My cash would not fare as well over 36 years. I am getting about 2% on that right now. If that rate stays the same, it will take 72/2 = 36 years to double.
As you can see, the Rule of 72 is darn close. It’s also easily divisible by 1, 2, 3, 4, 6, 8, 9, and almost easily divisible by 5,7 and 10.