The rule of 72

How long will it take for your money to double in an investment? What a great question.With everything going on in the market today your financial adviser would be well within his or her rights to say, "who knows?" Of course that is a short term view and as most of us should know the market will go up over time. In the short term things are always going to be choppy like the waters of Cook Strait however in the long term we should see returns. So, how do we calculate how long our money will take to double?

We use the rule of 72. "What?" I hear you say, "What is the rule of 72?" Well the rule of 72 is a very easy way to figure out how long it will take for an investment to double. So if you give your money to the bank and they are paying an annual interest rate of 6% then it will take 12 years for your investment to double. If they give you 9% then you guessed it the investment will take 8 years to double. Simple, eh?

The rule of 72 can also be used for inflation. In New Zealand for the last 150 years the inflation rate has been annually 2.7%. So if we divided 72 by 2.7% then we get 26.6. So our money historically will halve in value in 26.6 years.

The last question is of course, why 72? Well, I have no idea. I"m sure some mathematician spent many hours trying to come up with that one. Good on him I say.