The key to the rule of 72 is that it describes how long it takes your money to double. The shorter the period, the more doubling periods you will get over a long period of time (if you double-click on the graph beside you, you will see what I mean).
If you look at the table below, you can see what happens if you can actually get your investments to give you 7% or higher growth every year:
| Rate | Years to Double | Growth over 40 years |
| 1% | 69.7 | 0.0 |
| 2% | 35.0 | 2.2 |
| 3% | 23.4 | 3.3 |
| 4% | 17.7 | 4.8 |
| 5% | 14.2 | 7.0 |
| 6% | 11.9 | 10.3 |
| 7% | 10.2 | 15.0 |
| 8% | 9.0 | 21.7 |
| 9% | 8.0 | 31.4 |
| 10% | 7.3 | 45.3 |
| 11% | 6.6 | 65.0 |
| 12% | 6.1 | 93.1 |
| 13% | 5.7 | 132.8 |
| 14% | 5.3 | 188.9 |
| 15% | 5.0 | 267.9 |
| 16% | 4.7 | 378.7 |
| 17% | 4.4 | 533.9 |
| 18% | 4.2 | 750.4 |
| 19% | 4.0 | 1051.7 |
| 20% | 3.8 | 1469.8 |
So, as you see, if you can get your investments to pay 10% a year, your initial investment will have grown by a factor of 45.3. That means if you invested $1000 (and never added to the principal), forty years later you would have $45,300, not bad, eh?
Einstein Key to Riches?
Of course, if you could find something that paid 20%, the same $ 1,000 would be worth $1,469,800, but who could find something that pays that much (unless you were running a payday advance company)?
No, Einstein’s observation about the rule of 72 isn’t that earth-shattering; it is simple arithmetic, but something to keep in mind when investing or going into debt.
Rule of 72 FAQ
The Rule of 72 estimates how long it takes money to double at a fixed annual return.
Divide 72 by the annual interest rate. Example: 72 ÷ 8 = about 9 years.
It’s an approximation, but surprisingly accurate for normal investment returns.
Einstein and Finance
Really? You think those two go together? I think so.
Always loved the rule of 72. Just goes to show you that earning 16% at Prosper.com goes a heck of a long way versus 5% in a money market. (Risk aside, of course!)