The Rule of 72 is a formula through which we can work out how many years it would take to double our investment depending upon the rate of interest we earn or the return we get. For instance, if we earn 6% interest on our deposit with the bank, it would take us twelve years to double our investment. We arrive at the result by dividing 72 by the rate of interest which is 6%. When we divide 72 by 6, we get 12 which is the number of years it would take for the amount to double. In other words, 72/6=12. Let us see how this works out:
Year Investment Amount Interest Amount Total Amount
1 100 6 106
2 106 6.36 112.36
3 112.36 6.7416 119.1016
4 119.1016 7.146096 126.247696
5 126.247696 7.57486176 133.82255776
6 133.82255776 8.0293534656 141.8519112256
7 141.8519112256 8.5111146735 150.3630258988
8 150.3630258988 9.0217815539 159.3848074527
9 159.3848074527 9.5630884472 168.9478958999
10 168.9478958999 10.136873754 179.0847696539
11 179.0847696539 10.7450861792 189.8298558331
12 189.8298558331 11.38979135 201.2196471831
This way, the amount of investment doubles every 12 years and grows eight times every 35 years. So, if we invest $100/- at the age of 19, it will double by the time we are 32. And, it will grow by eight times and become $800/- by the time we are 55 years of age.
This is a very important lesson in financial literacy. The Rule of 72 is a mathematical concept that approximates the number of years it will take to double the principal amount at a constant rate of return compounded over time. All figures are for illustrative purposes only, and do not reflect the risks, expenses or charges associated with an actual investment. The rate of return on investments fluctuates over time, and, as a result, the actual time it will take an investment to double in value cannot be predicted with any certainty. Results are rounded for the purpose of illustration. Actuarial results in each case could be slightly higher or lower.
