The Rule of 72 Party Trick
Jan 27, 2023
Here is a very cool “math magic” trick that financial advisors use on a weekly basis. We thought you might like to try it in your households.
It’s called “The Rule of 72.
Here’s how it works. The Rule of 72 is a quick formula to estimate the number of years required to double the invest money at a given annual rate of return. It can also compute the annual rate of compounded return from an investment given how many years it will take to double the investment.
Years required to double investment = 72 ÷ compound annual interest rate
Examples:
- How long will it take to double your money assuming a 10% rate of return? You would divide 72 by 10 (rate of return) and that would mean your money would double in 7.2 years.
- What rate of return do you need to get to double your money in 10 years? Divide 72 by 10 (years) and you’ll get 7.2%.
Believe it or not having this math trick in your arsenal not only serves as a fun math riddle, it is largely useful to financial advisors to help clients conceptualize what it will take to reach some of their financial goals or even estimating the costs of retirement or college in the future.
If your family prefers learning by video try this link. Two minutes is all it takes.
