| This article gives a quick rule of thumb to calculate how fast your investments can grow. If you put RM1,000 in a fixed deposit s today and earn a 3% return per annum, do you know how long does it takes to double your money? Before you rush off for a calculator, let us tell you, it is 24 years. How d id o we get that number in a matter of second s ? S imply , by dividing just 72 by 3 (the interest rate). Yes, 24 years is the time it takes for RM1,000 to double to RM2,000 (assuming that no further deposits are added in that time). Rule of 72
The “Rule of 72” is a rule of thumb that can help investors compute the time it takes for their money to double, given an interest rate or return, and if they do not add in any money in that time. It is called the Rule of 72 because at 10%, the money will double every 7.2 years. However, like any rule of thumb, this rule is only good for approximations.
What else can it be used for?
- To find the rate of return required to make your investment portfolio double
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Divide 72 by the number of years you want your money to double. For instance, if you want your money to double in 10 years, thus you will need a consistent 7.2% return from your investment annually.
| Calculation: |
72/X years = Y (% of return) |
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72/10 years = 7.2% return |
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- To find out how fast your debts can double, especially with high interest rates
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If you borrow RM10,000 at 12% interest rate s , thus it would take s six years for your debt to double to RM20,000, if you do not make any payments. So pay your credit card debt now!
| Calculation: |
72/Y % (interest rates) = X years |
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72/12 % = 6 years |
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