I love learning math tricks that help me calculate a number quickly. One math trick that’s particularly helpful in the investing world is called The Rule of 72. Basically, if you have an investment that is growing at X% – let’s say 7% – then you take 72 and divide it by 7 and you will get about 10.3, or about 10 years for your money to double at a growth rate of 7%. The actual number is 10.24, so it’s a very good rule of thumb that will get you in the ballpark.
Below I present the table with the actual calculations and the difference between the estimate derived from The Rule of 72 and the actual number:
So how long would it take for your money to grow at a 10% annual rate? The Rule of 72 suggests about 7.2 years (72 divided by 10). The actual number is 7.27 years – again a very good approximation. Remember to use The Rule of 72 to give you a good estimate for how long it will take for your investments to double in value.