The first reference we have of the Rule of 72 comes from Luca Pacioli , a renowned Italian mathematician. He mentions the rule in his 1494 book Summa de arithmetica, geometria, proportioni et proportionalita (“Summary of Arithmetic, Geometry, Proportions, and Proportionality”).
Did Einstein discover the Rule of 72?
The Rule of 72 was discovered by Albert Einstein and he considered it his greatest discovery even over E=MC2 (Squared). He considered it the most powerful force on earth. In its simplest form Einstein explained it this way. When you invest money, you earn interest on your capital.
How is the Rule of 72 derived?
For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72/10) = 7.2) to grow to $2 . In reality, a 10% investment will take 7.3 years to double ((1.10 7.3 = 2). The Rule of 72 is reasonably accurate for low rates of return.
What does 72 mean in the Rule of 72?
The “Rule of 72” approximates how many years it will take for your money to double, given a fixed rate of return .
How the Rule of 72 makes you into a millionaire?
The rule of 72 tells you how long it will take for your investment to double . The only variable you need is an estimated rate of return on your investments. You divide 72 by your annual rate of return , and that is how many years it will take to double your money.
What is the difference between the rule of 70 and the Rule of 72?
The rule of 70 and the rule of 72 give rough estimates of the number of years it would take for a certain variable to double . When using the rule of 70, the number 70 is used in the calculation. Likewise, when using the rule of 72, the number 72 is used in the calculation.
Why does rule of 70 work?
The rule of 70 is a calculation to determine how many years it’ll take for your money to double given a specified rate of return . The rule is commonly used to compare investments with different annual compound interest rates to quickly determine how long it would take for an investment to grow.
What is the 7 year rule for investing?
With an estimated annual return of 7%, you’d divide 72 by 7 to see that your investment will double every 10.29 years . In this equation, “T” is the time for the investment to double, “ln” is the natural log function, and “r” is the compounded interest rate.
What does CAGR stand for?
The compound annual growth rate (CAGR) is the annualized average rate of revenue growth between two given years, assuming growth takes place at an exponentially compounded rate.
Why do economists use the Rule of 72 instead of 69?
Using the rule of 72 allows you to have a solid idea of when your investment would double just from the investment rate . Very conveniently, the number 72 divides cleanly into 1, 2, 3, 4, 6, 8, 9 and 12, allowing for a quick and simple division problem instead of your usual compound interest problem.
Does money double every 7 years?
The most basic example of the Rule of 72 is one we can do without a calculator: Given a 10% annual rate of return, how long will it take for your money to double? Take 72 and divide it by 10 and you get 7.2. This means, at a 10% fixed annual rate of return, your money doubles every 7 years .
What is the 4% rule of retirement?
One frequently used rule of thumb for retirement spending is known as the 4% rule. It’s relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement . In subsequent years, you adjust the dollar amount you withdraw to account for inflation.
How can I double my money?
- 401(k) match. If your employer offers a match for your 401(k) contributions, this can be the easiest and most guaranteed way to double your money. ...
- Savings bonds. ...
- Invest in real estate. ...
- Start a business. ...
- Let compound interest work its magic.
How reliable is the Rule of 72?
The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10% . The Rule of 72 can be applied to anything that increases exponentially, such as GDP or inflation; it can also indicate the long-term effect of annual fees on an investment’s growth.
What interest rate do you need to double your money in 5 years?
For example if you wanted to double an investment in 5 years, divide 72 by 5 to learn that you’ll need to earn 14.4% interest annually on your investment for 5 years: 14.4 × 5 = 72. The Rule of 72 is a simplified version of the more involved compound interest calculation.
What interest rate will double money in 10 years?
If your goal is to double your invested sum in 10 years, you should invest in a manner to earn around 7% every year . Rule of 72 provides an approximate idea and assumes one time investment.
