November 5, 2002

The "Rule of 72"
by Marcel Chartier

The rule of 72 is the best, easiest, and simplest way to figure out how "on track" or not you are in reaching your financial goals.

Divide the annual expected percentage growth in your investments into 72, and that is the amount of time it will take for your current investment to double.

So:

72/8%= 9 years

72/9%= 8 years

72/10%= 7.2 years

72/11%= 6.5 years

and just for fun

72/14%=5.14 years

So the lesson - percentages matter. Even 1% better returns per year can end up over time doubling your money sooner, and growing your investments significantly faster. This is the reason why it is very important to squeeze out costs by not paying too much in fees and getting the steadiest compound return you can.

So, if you have $67,000 now, and are averaging 10% a year return, you will have $134,000 in 7.2 years. Double that again, and you will have $268,000 in a total of 14.4 years.

What do you have now? What is your average percentage return per year? When will it double? As in the previous example, if I was retiring in 15 years I would have an idea of what I would have, excluding any additional funds put in during this time. How would that apply to you?

Simple but powerful - the "Rule of 72".