Here’s How You Can Double Your Money Using the Rule of 72

Here’s How You Can Double Your Money Using the Rule of 72

David Nadelle   Wed, March 1, 2023

For the climate-conscious, a marker of 72 may be good enough when you’re setting the thermostat. But when it comes to measuring money, the financially aware use lucky number 72 principally to calculate how long it will take to double their investments.

The Rule of 72 is a simple financial planning tool that can be used to calculate how fast your money will double at a given rate of return involving compound interest. Per SmartAsset, the mathematical equation is: 72 ÷ your compound annual interest rate = how many years until your investment doubles.

For example, using an annual interest rate of 8%, your dividend will double in 9 years. Conversely, if you want to know what interest rate you will need to achieve your goal of doubling your investment, reverse the equation and divide your desired number of years from 72 (72 ÷ 4 years = 18% required annual interest rate).

Rule of 72 Has Been Around Since the 1400s

According to Wealthsimple’s Dennis Hammer, the Rule of 72 has been around for centuries. Hammer cited Italian mathematician Luca Pacioli as first referencing it in a 1494 text titled “Summary of Arithmetic, Geometry, Proportions, and Proportionality.”

“In wanting to know of any capital, at a given yearly percentage, in how many years it will double adding the interest to the capital, keep as a rule [the number] 72 in mind, which you will always divide by the interest, and what results, in that many years it will be doubled,” wrote Pacioli. “Example: When the interest is 6 percent per year, I say that one divides 72 by 6; 12 results, and in 12 years the capital will be doubled.”

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https://news.yahoo.com/72-magic-number-money-why-161944103.html