Skip to content
Menu
  • Financial News
  • Business Directory
  • Classified Ads
  • Web Reseller
  • Web Services

Wealth Hack

Multiple Income Stream Blog

Mobile Menu
  • Home
  • Blog
    • Investing
    • Business
    • Life
    • Video
  • Sites
    • CyFocus
    • CyFocus Reseller
    • SimplyWallSt
    • Questrade
    • Wealthsimple
    • Tangerine Bank
    • Lending Loop
    • Shopify
  • Video
  • About Me
  • Contact

What is the rule of 72 in investing

By WealthHack  Posted on June 13, 2019 In Blog, Investing Tagged 72 rule, 72 rule of investing, rule of 72 Leave a comment 

You can estimate how many years it would take for your initial investment to double itself

Here’s how it works

The rule of 72 states that by dividing 72 by a fixed annual rate of return, you’ll receive the approximate number of years it would take to double your initial investment.

Formula

Rule 72 investing

Example

Suppose you invest $1,000 and receive a fixed annual 10% return. In this example, it would take 7.2 years [(72/10) = 7.2] to double your investment to $2,000 with the compound interest.

Example Rule 72 investing

Here is the year by year breakdown

Number of yearsBalance after return
Year 1$1,100
Year 2$$1,210
Year 3$$1,331
Year 4$1,464.10
Year 5$1,610.51
Year 6$1,771.56
Year 7$1,948.72
Year 7 + 2.4 months$2,000

Variation of annual rate of returns

The chart below compares the number of years it takes for an investment to double itself given a variety of different annual rates of return.

Annual rate of returnyears to double
3%24 years
4%18 years
5%14 years
6%12 years
7%10.3 years
8%9 years
9%8 years
10%7.2 years
11%6.5 years
12%6 years
13%5.5 years

You can use the rule of 72 to crunch the numbers yourself.

Scenario

Suppose John, conservative investor, buys a $15,000 guaranteed fixed-income product that pays 2% interest annually. According to the rule of 72, it will take him 36 years to double his money (to $30,000).

[72/2% (annual rate of return) = 36 years]

On the other hand, Steve who’s willing to accept a higher risk for higher potential returns, invested in the stock market and managed to achieve a consistent 8% return year after year. Giving the 8% annual rate of return, it took him only 9 years to double his initial $15,000 investment in comparison to Joe’s 36 years to do so from his 2% return investment.

[72/8% (annual rate of return) = 9 years]

From this comparison, we see that investing in products that have a better potential return will lower the time required to double the investment. However, this higher risk can result in higher losses. Just because you now have a better idea of how long it’ll take your investments to double, make sure you don’t go chasing that number and take on risk you’re not comfortable with.

Everyone wants to double, triple, or quadruple their money but that doesn’t happen overnight. Using the rule of 72 can at least help you plan for the years ahead. And it’ll keep your eye on the horizon, looking forward to days when your portfolio is much larger than it is now. With sound investing, that time will be here before you know it.

The information in this blog is for information purposes only and should not be used or construed as financial or investment advice by any individual.

Post navigation

What is Smith Manoeuvre
How to Convert CAD to USD for less: Norbert’s gambit

Leave a Reply Cancel reply


Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Follow me

  • facebook
  • twitter
  • instagram
  • pinterest
  • flipboard

Categories

  • Blog
  • Business
  • Investing
  • Life
  • Video

Recent Posts

  • Passiv portfolio management tool
  • What is ESG Investing?
  • Jobs that are trending during the COVID-19 pandemic
  • How To Choose The Right Questrade Account For Your Investments
  • Financial support for Canadians during the Coronavirus pandemic
  • 7 indicators used to assess stocks
  • How to Prepare for a Recession
  • How to Convert CAD to USD for less: Norbert’s gambit
  • What is the rule of 72 in investing
  • What is Smith Manoeuvre
  • What is Dogs of the Dow Investment Strategy
  • What is BTSX investment strategy
  • 7 Writing Business Ideas
  • Warren Buffett Documentary | VIDEO
  • List of Free Online Checking Accounts at U.S. Banks

Top Posts

  • What is BI Triangle formula?
  • How I eliminated my 300k debt in 8 years
  • How to Fund your Questrade
  • Simply Wall St Stock Screener
  • What is Smith Manoeuvre

Tags

ads adsense becoming warren buffet canada canadian covid 19 diversification dividend dividend yield dogs of the dow dow jones ducumentary etf FIRE free checking account google adsense income invest investing line of credit margin market crash mint no fee banking online business pandemic questrade reits robert kiyosaki roboadvisor rrsp simplywallst simply wall st stock analysis stock analysis app stocks tangerine taxes tfsa US banks vanguard video warren buffet wealthsimple writing business

Diverse Entrepreneur

Multiple Income Stream Blog
Multiple Income Stream Blog

DiversePreneur Flipboard

View my Flipboard Magazine.

Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy

Copyright © 2020 Wealth Hack Powered By CyFocus | Privacy Policy | Terms of Service | Disclaimer
  • Disclaimer
  • Privacy Policy
  • Terms of Service
  • Powered by CyFocus
sponsored