The Rule of 72 - Tips on Investing

Dated: October 2 2020

Views: 38

Ever heard of the Rule of 72?  This one is great to put investments into perspective. 

Grab your calculator and follow along....

Say you have an investment that is growing at x%; for example 7%. Input "72" in your calculator and divide it by "7" and you end up with about "10.29" -- that number is a rough estimate on how long it takes to Double Your Money....so it would take about 10.29 years to double your money at an annual growth rate of 7%.

If you used a time value of money formula / schedule, the actual number is 10.24...but by using 72 -- this gets you super close to what the actual number is....without all of the extra work. Cool right!? 

See the table below with sample calculations -- look at the comparison! Use the Rule of 72 for quick calculations on your investment. How can you use this in real estate, you ask?  According to Investopedia.com "From 1968 to 2009 the average rate of appreciation for existing homes increased around 5.4% per year."  Using the Rule of 72...that means it would take about 13.33 years to double your money. Of course, there are other things that can factor in here, like your down payment, maintenance, etc. but you get the gist of how real estate is still a great place to invest!

Interest on        your investment

Time value of Money calculation it would take this many years to double your money

   Rule of 72

Using the Rule of 72 as opposed to time value of money formula your estimate is off by this many years

     1%   69.69    72     2.31
     2%   35   36     1.00
     3%   23.44   24     0.56
     7%   10.24   10.29      .04
    10%   7.27   7.20     -.07
    12%   6.12   6     -.12
    15%   4.96   4.80     -.16

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Julie Hinojosa, CCIM

I'm an entrepreneur minded individual with real estate skills. Commercial and residential!....

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