Investing's "Rule of 72"

Filed in archive Investing on July 18, 2006

I've heard of the "Rule of 72" a million times but I always forget what the heck it means, so I am providing a public service by once again bringing it up today. (Actually I'm doing it for my own benefit, but if it's helpful to you, that's gravy.)

Here's how it works: Take the number 72 and divide it by the interest rate you're earning on an investment. That's how long it will take your money to double.

Getting only two percent? It'll take 36 years for your money to double. (72/2=36)

Getting 6 percent? Only 12 years to double your money. (72/6=12)

During the late 90s it was more like 18%, in which case you were doubling your money in 4 years. I know some people who did just that. Unfortunately for them (and me), they thought it would last forever, and the little known Rule of 4100 came into play. (That rule states that if you double your money in 4 years, you'll lose 100% of that money in the following 4 years.)