The Rule of 72 | Primerica (2024)

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The Rule of 72 | Primerica? ›

Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.

The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase.

Rules of 72, 69.3, and 69

The Rule of 72 states that by dividing 72 by the annual interest rate, you can estimate the number of years required for an investment to double. The Rule of 69.3 is a more accurate formula for higher interest rates and is calculated by dividing 69.3 by the interest rate.

Errors and Adjustments

The rule of 72 is only an approximation that is accurate for a range of interest rate (from 6% to 10%). Outside that range the error will vary from 2.4% to 14.0%. It turns out that for every three percentage points away from 8% the value 72 could be adjusted by 1.

If you need to double your financial investment in 10 years, a savings account with a 5% interest rate, for instance, wouldn't help achieve your goals. You'd need something with a higher rate of return (at least 7.2%) to make that 10-year milestone happen.

The magic number

The premise of the rule revolves around either dividing 72 by the interest rate your investment will receive, or inversely, dividing the number of years you would like to double your money in by 72 to give you the required rate of return.

Choice of rule

Since daily compounding is close enough to continuous compounding, for most purposes 69, 69.3 or 70 are better than 72 for daily compounding. For lower annual rates than those above, 69.3 would also be more accurate than 72. For higher annual rates, 78 is more accurate.

You can also apply the Rule of 72 to debt for a sobering look at the impact of carrying a credit card balance. Assume a credit card balance of $10,000 at an interest rate of 17%. If you don't pay down the balance, the debt will double to $20,000 in approximately 4 years and 3 months.

What is the rule of 74? ›

For a 14% rate of return, it would be the rule of 74 (adding 2 for 6 percentage points higher), and for a 5% rate of return, it will mean reducing 1 (for 3 percentage points lower) to lead to the rule of 71. For example, say you have a very attractive investment offering a 22% rate of return.

Similarly, the rule of 114 tells you approximately the number of years needed to triple your money. Use this rule to find out the time it will take your investment to quadruple. Instead of 72 you just need to use 144 (2 x 72 = 144). For instance, if your return is 9% you need to divide 144 by 9 and you will get 16.

In an action in which any part of the relief sought is a judgment for a sum of money or the disposition of a sum of money or the disposition of any other thing capable of delivery, a party, upon notice to every other party, and by leave of court, may deposit with the court all or any part of such sum or thing.

Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

The Rule of 78 is an important consideration for borrowers who potentially intend to pay off their loans early. The Rule of 78 holds that the borrower must pay a greater portion of the interest rate in the earlier part of the loan cycle, which means the borrower will pay more than they would with a regular loan.

The Rule of 78s is also known as the sum of the digits. In fact, the 78 is a sum of the digits of the months in a year: 1 plus 2 plus 3 plus 4, etc., to 12, equals 78. Under the rule, each month in the contract is assigned a value which is exactly the reverse of its occurrence in the contract.

Final answer:

It will take approximately 15.27 years to increase the $2,200 investment to $10,000 at an annual interest rate of 6.5%.

The rule of 72 can help you get a rough estimate of how long it will take you to double your money at a fixed annual interest rate. If you have an average rate of return and a current balance, you can project how long your investments will take to double.

By dividing 72 by the average inflation rate, you can estimate how long it'll take for the cost of living to double, aiding in long-term financial planning. Visualize the Power of Compounding: By visualizing how quickly investments can grow, the Rule of 72 underscores the importance of compounding.