All About Investing
Young Fools
March 25, 1998

The Rule of 72

Want to double your money? Of course you do. Here's a trick to figure out how long it will take you to double your money with different rates of return.

Let's say you have invested your money and you expect to earn 12% per year. Take the magic number 72. (Why 72? Well, it's a number that someone discovered works for this exercise.) Divide it by 12, and you get 6. This means that it will take roughly 6 years for you to double your money if you're earning 12%. How about if you were earning 20%? Take 72 again. Divide it by 20. And you get 3.6. So it will take about three and a half years to double your money at 20%. And if you made some brilliant investments and picked some amazing companies that returned 24% for you each year? 72 divided by 24 equals 3. Three years. Cool, huh?

Note: This is just a rule of thumb, and the results are not exact. It only works when you're not dealing with extreme numbers. In other words, the higher the return, the less accurate the result. If you're trying to see how long it will take you to double your money at 72%, the rule tells you one year. And that's clearly wrong. In one year, you'll earn just that -- 72%.

Here's another strange mathematical fact. What percent return do you need to double your money? 200%? Nope. Just 100%. Does this confuse you? Think about it for a minute. Let's say you have $30 and you want to double it to $60. Most people might think that you need to increase your $30 by 200% to double it. Well, that's wrong. 100% of $30 is $30. So you need to increase your $30 by 100%, or $30, to double it. (Still confused? Ask a friend or parent or math teacher to explain it.)

If you triple your money, you earn a return of 200%. So, if you hear some investing genius say, "My Microsoft shares are three-baggers for me," that means that the person has seen the value of his shares triple, or increase by 200%.(That's a little investment slang -- a "two-bagger" means you've doubled your money, and a "ten-bagger" means your money has increased ten times in value.)

All About Investing

Risk and Return
The Rule of 72
Ways to Grow Your Money
Ways to Lose Your Money