The Rule Of 72

[Scott Sando]

'There’s a great trick that can be used to easily figure out how long it will take compounding interest to double your investment: it’s called The Rule of 72.

This is an easy trick. You simply divide 72 by your interest rate to solve for the number of years that it will take your initial investment to double in value.

Let’s take a look at a few examples. At my credit union the savings account pays 1% interest, so 72 divided by 1 is 72 – it will take an investment of $1,000 (or any amount) 72 years to double at a rate of 1 percent. On the other hand the current rate on the Orange Savings Account at ING Direct is 2.4%. So 72 divided by 2.4 is 30 – or in other words it will take 30 years for my investment to double if I were to place it in the Orange Savings Account.

See how much of a difference a small percentage increase can make? Let’s really have some fun with this now. If you could manage a return of 10% annually you could double your initial investment in 7.2 years! Or if you could manage a return of 15% you would be able to double your investment in 4.8 years!

The Rule of 72 can also be used to calculate a interest rate you’ll need to double your money in a certain amount of years. For example let’s say you want to double your money in 3 years. So divide 72 by 3 and you’ll come up with 24, which means you’ll need to earn a return of 24% in order to double your money in 3 years.'

Mr.Waggoner's Rule of 72?

'The Rule of 72 is a simple mathematical theorem used to calculate the effect of interest or inflation on money. For example: you might wonder how long it would take for a $50 deposit in a savings account to double at a 3 percent annual percentage rate of return.

Divide 72 by 3. The answer is 24. It would take 24 years for a $50 deposit to double at a 3 percent rate of return. Again: How long would it take for the purchasing power of a $50 deposit in a savings account to be reduced by half? Let's say the annual percentage rate of return on the savings account is 3 percent and that the inflation rate is 10 percent. That means -10 percent plus 3 percent equals -7 percent.

The purchasing power of your savings account is being reduced by 7 percent every year. Now, divide 72 by seven. The answer is 10 years and three months. If you leave your money in the bank, in 10 years and three months, your savings will have one-half (50 percent) of its original purchasing power. This theft will be actually accelerated, of course, by whatever income taxes you are required-it's not voluntary-to pay on the meager, negative interest your savings may have earned.'

[General Congreve]

Nice one Scott, very useful, cheers.

[Cinzano Bianco]

Hi Scott,

You might be interested in this video, if you haven't already seen it:

It's the first of 8 parts, and I highly recommend watching them all.

Cheers.

Edit to add link to youtube search here.

Edited December 5, 2010 by the.ciscokid

[Scott Sando]

Hi Scott,

You might be interested in this video, if you haven't already seen it:

It's the first of 8 parts, and I highly recommend watching them all.

Cheers.

Edit to add link to youtube search here.

Cheers for the vid, its important to know these simple rules to avoid been ripped off. I wonder why they don't teach this in schools? Shock horror, they may not want us to know.

[Giordano Bruno]

Cheers for the vid, its important to know these simple rules to avoid been ripped off. I wonder why they don't teach this in schools? Shock horror, they may not want us to know.

I think I was told it in school, or I read it in a children's book, at an early age. The story of the chessboard, that is.

The rule of 70 is a very good rule to know about. Makes me nostalgic for the days of high interest rates, in the 60s.

In a way, the chessboard story informs me that ponzi schemes, bubbles, and chain letters will always end up pear-shaped sooner than anyone expects.

Edited December 5, 2010 by Giordano Bruno

[singlemalt]

Useful to know. Thanks OP.

[Tricksy]

Cheers for the vid, its important to know these simple rules to avoid been ripped off. I wonder why they don't teach this in schools? Shock horror, they may not want us to know.

I blame the Knights Templar.

Or maybe the Bilderbergs?

Or the Rothschilds?

Or the Giant Squid?

The Elites?

The Judeo-Christian Hegemony?

VI's?

BTL's?

NWO?

The Wilsons?

The Moderators?

Sibley?

Or maybe I just wasn't listening in school.....?

[billybong]

Some of the suggestions he quoted as being made for solving problems were sublime. Along the lines of:

"We'll never run out of copper because we'll just make it from other stuff".

"If the sun ever fails there are plenty others in the Universe".

Edited December 5, 2010 by billybong

[Pent Up]

That's very interesting and useful thanks!

[Panda]

Rule of 70 yep, but one word "WAGE" forget savings, they are the excess wage...............How does the rule of 70 work relative to your real 37 hour week wage.

Mine, well according to the rule of 70, it, your wage needs to double every twenty years, in 1990 what was the median wage, well today at a guess i would say it is £26k, i bet it was not £13k in 1990, more like £18k?

[Self Employed Youth]

With inflation running at 5% the penny coin will be worthless as currency in 2024 then. Minimum wage will have risen to some 0.33 pence per second.

And only a few can pick one penny up in 3 seconds!

Some struggle with doing it in 6 seconds already.

I shall convert my paper currency into metal overtime.

Don't find many pre 92 coppers no more!

[IP Newcomer]

Cheers for the vid, its important to know these simple rules to avoid been ripped off. I wonder why they don't teach this in schools? Shock horror, they may not want us to know.

I was told about this in Economics, Maths and even once in History. Shock, horror, most of us don't pay attention at school and then complain that we don't know enough not to get though life.

[Scott Sando]

I was told about this in Economics, Maths and even once in History. Shock, horror, most of us don't pay attention at school and then complain that we don't know enough not to get though life.

[dissident junk]

There is a great lecture somewhere on the t'interwebs from a mathematician about the rule of 72 and growth in a finite space.

He talks about bacteria doubling in a finite space and makes the point that you don't know the finite space is full until it has already happened because the stage immediately previous to 100 per cent full is only 50 percent full.

It has always stuck in my head, that, because I have always been encouraged to assume you can seeing things coming a long time before they reach emergency status. He suggests that you cannot.

He also makes this fascinating point about population increase and democracy, saying that if the number of elected representatives stays static while population increases, then the democratic power of an individual in that area decreases.

I had never heard anyone make that argument before.

[Lepista]

What is the intrest rate you need to double your investment in two years?

[cashinmattress]

Not 72. 69, or even 70 will yield more accurate results.

Actually, its:

Natural logarithm of 2 = 0.693 (doubling)

Natural logarithm of 3 = 1.099 (trebling)

Natural logarithm of 4 = 1.386 (quadrupling)

Natural logarithm of 5 = 1.609 (quintupling)

72 is just for lazy maths

So for duplicity period, divide with SIMPLE interest...

Doubling time = 0.693/interest rate [interest rate in decimal format, ie divide it by 100]

Example, if you have £10,000 in your ISA and it's on a fixed X% interest rate for the foreseeable future, and you add no further principal, you will have £20,000 in your account after:

(0.693)/0.02 = 34.7 years (2%)

(0.693)/0.03 = 23.1 years (3%)

(0.693)/0.04 = 17.3 years (4%)

(0.693)/0.05 = 13.9 years (5%)

On the other hand, if have a credit card, with £10,000 on it, and the APR is one of the following, you will have paid out double in these times if you only pay the minimum interest charge:

(0.693)/0.129 = 5.4 years (12.9%)

(0.693)/0.169 = 4.1 years (16.9%)

(0.693)/0.279 = 2.5 years (27.9% - common store card rate)

Further, for those who keep it running on the store card, using the other numbers:

Your initial big box purchase, say of £10,000 for kitting out your lounge with high-tech naff, running on 27.9% interest and paying minimum terms, well,

You'll have paid double in 2.5 years.

You'll have paid triple 3.9 years.

You'll have paid four times by 5 years.

Too bad most people don't understand, and just get angry when you talk to them about some basic principles of interest rates. These seemingly simple calculations and our national ineptitude is what keeps the boys in London, New York, and the other trading cities in their Ferraris.

I dread to think about what horrible financial ruse's have been dreamed up using the Calculus.

This is my rant for this afternoon.

[winkie]

This is my rant for this afternoon.

Good post...they should teach this to all kids in school..one of the basics of life.

[MongerOfDoom]

Not 72. 69, or even 70 will yield more accurate results.

Actually, its:

Natural logarithm of 2 = 0.693 (doubling)

(...)

So for duplicity period, divide with SIMPLE interest...

Doubling time = 0.693/interest rate [interest rate in decimal format, ie divide it by 100]

So if the interest is 100%, the amount will double every 0.69 years? The "formula" has always been a rough approximation, and you certainly did not improve it much. A little knowledge is the most dangerous thing ever.