What is Rule of 72?



rule 72

Rule 72 is a simple methamatical formula but an effective way to calculate the estimate time for you to double your money.

The rule was discovered by Albert Einstein based on compounded interest principles. Referring to compound interest, Albert Einstein is quoted as saying: “It is the greatest mathematical discovery of all time.”

The formula for Rule 72 is

Number of Years =
____72_____
Interest Rate (%)

Examples of RM10,000 investment using The Rule of 72

Annual % Rate Years to Double Value in 10 Years Value in 20 Years
2% 36 years RM12,189 RM14,859
6% 12 years RM17,908 RM32,071
10% 7.2 years RM25,937 RM67,275
24% 3 years RM85,944 RM738,641

Based of the examples, it takes about 28.8 years if you only keep your money in FD based on current rate of 2.5%. However if you keep in ASB you only need about 9 years (based on dividend rate 8%)

The same rule is also apply on your debt. For example if you did not pay your credit card debt, it only take 4 years to doubled based on 18% interest rate !!


Leave a Comment

  • JC 15th June, 2010, 9:38 am

    yeah..summore there are inflation rate around 3 to 5% yearly..our value of money are decreasing… feel free to visit my blog http://myinvest89.blogspot.com

    Reply
  • CSS 2nd December, 2010, 10:30 am

    So it only takes 72% to double your money in a year?

    Reply
    • 1mdb.com 2nd December, 2010, 1:12 pm

      To double your money in one year you need 100% return. 🙂

      Reply