Return to Blog

The Rule of 72 and Your Investments

When you are planning your finances, it can be helpful to know a quick way to estimate the future value of an investment. The Rule of 72 is a simple formula that allows anyone to calculate the length of time it will take for an investment to double in value. With this estimate, investors can plan for the future knowing roughly how much they will yield from an investment at certain increments of time. It is also useful for making any kind of investment decision because it focuses only on growth rate. This blog is a part of a series written by our summer intern, Makenna. This series is based off excerpts from the well-known book, A Random Walk Down Wall Street.

How to Use the Rule of 72

All you need in order to use this formula is the rate at which you expect your money to grow. After you calculate the doubling time, you can compare it to your initial investment to see how much your money will grow over time. The Rule of 72 states that by dividing 72 by your percentage of growth, you can calculate the number of years it takes for your investment to double in value. For this example, I will use a 10% growth rate and an initial investment of $5,000. Using the Rule of 72, I can calculate (72/10)= 7.2. This means that it will take 7.2 years for my investment to double. In addition, if the growth rate stays the same, I can expect the same doubling time in the future. $5,000 becomes $10,000 in 7.2 years, and then it becomes $20,000 after another 7.2 years. This Rule of 72 is helpful because it does not depend on the amount of money you invest. It simply explains how much time it will take for an investment to double. Using a 10% growth rate, we know that $5,000 will become $10,000 in 7.2 years but also that $250,000 will become $500,000 in 7.2 years.

When can I use this formula?

This information is applicable to any kind of investment including stocks, retirement accounts, bonds, savings accounts, etc. If it has a growth rate, you can use the Rule of 72. However, it is important to note a few precautions before relying on this method to predict future performance. First, companies do not last forever. When you invest, you always take on the risk that a company could dissolve. Of course, some investments are backed by insurance, but for the most part, risk can affect the value of your investment. Therefore, the Rule of 72 is not a perfect formula because it ignores the lifetime of a company. Also, the Rule of 72 is just an estimate. It is a good estimate considering how easy it is to calculate, but it is usually not accurate when compared to the longer financial forecasting calculations. Growth rates often change over time which further proves the instability of this formula. The purpose of the Rule of 72 is to give you a quick estimate of doubling time and nothing more.

Whether you are forecasting for your retirement or simply wondering what your investment will yield in a few years, the Rule of 72 is a helpful tool for visualizing future returns. This formula is used by new and experienced investors for a quick glance at potential growth over time. As long as you consider the faults of this formula in your calculations, the Rule of 72 is a great way to help you make wise investment decisions.

Makenna Cooper
Summer Intern / Berry College Student

Casey Smith, President of Wiser, gives his thoughts on the Greenlight debit card for kids. Not sure if the card is worth it? Watch the video to learn some pros and cons about it. #greenlight #greenlightcard #money #kids #parenting

Many people approaching retirement age plan to claim Social Security as soon as they are eligible at age 62, but is that the best time? #socialsecurity #ss #retire #retirement #retired #money

On today's episode of the Wiser Roundtable Podcast, the team talks about ways to maximize social security and why it is important to do so. Listen wherever you get your podcasts!

#socialsecurity #investing #ss #podcast #money

Unsure if a lump sum or pension annuity is better? Watch this video to find out!

#lumpsum #pension #annuity #annuities #finance #money #investing #invest

Not sure why it is important to retire mortgage free? Read today's blog to find out!

#retire #retirement #retiree #retired #mortgagefree #mortgage #debtfree #debt

125 Church Street NE
Carmichael Building, Suite 220
Marietta, Georgia 30060



Client Access