Rule of 72 is a quick and reasonably good estimate to determine how long a particular investment can double its value. It assumes a fixed annual rate of return. The formula is simply taking 72 divided by the annual rate of return.
Example:
I expect an annual return of 5% for my investment, it would take 72/5 = 14.4 years for me to double the value. You can use the online calculator from moneychimp.
Please note that rule of 72 is not so accurate at low interest rate (below 3%) and at high interest rate (above 50%). Thus, anything in between (3%-50%) should be fairly accurate. Here are some rough estimates for various securities:
|
Annual Rate of Return |
Security |
Years to double investment |
|
0.3% |
Saving Account |
144 |
|
2% |
Treasury Bills |
36 |
|
2.5% |
Retirement Account |
28.8 |
|
3% |
Certificate of Deposits/Fixed Deposits |
24 |
|
5% |
Long term Bonds |
14.44 |
|
9% |
S&P Index Fund |
8 |
|
12% |
Stocks |
6 |
|
24% |
Berkshire Hathaway |
3 |
You may also like:
- Warren Buffett – "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
- What are Treasury Bills?
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