Do you know what interest rate you would need in order to double your money in 7 years? How about in 10 years? Use the rule of 72.
Using the Rule of 72
Determining what rate of return you need in order to double your money in 7 years comes down to a simple rule. The “Rule of 72.”
72/Number of Investing Years = Rate of Return Required
So for example: say you want your money to double in 7 years. What rate would you need?
72/7 = 10.28%
So we need a rate of return of 10.28%, but does this really double our money? Let’s see:
$1000 * (1.1028)^7 = $1938.71
Okay, so the rule of 72 doesn’t quite show you when your money will double, but it comes awfully close, right?
Next time you need a back-of-the-napkin way to determine when your money will double (maybe to double-check your financial advisor), you can pull out the Rule of 72 and do a quick calculation.
Btw, to double your money in 7 years, you would need a rate of return of 10.41% which makes the 72 into 72.863.
Note: The rule of 72 is not a guarantee of when your money will double. The rate of return given by the rule of 72 is simply the average rate you would need over the period given in order to roughly double your money. Actual returns depend on your investments and market conditions.