The rule of 72. You probably already know what it is all about. If not, the rule of 72 is used as an estimate to determine how long an investment will take to double at any given interest rate. Let’s say you have $10,000 in a CD that earns 5% annual percentage yield, or APR. How long will it take to reach $20,000? Just take 72 divided by 5, the interest rate on the investment, which equals 14.4 years.
Of course the rule of 72 is the most popular, but after running some numbers in a spreadsheet for fun, you can extrapolate even further! I used an 8% return which seemed to be the most accurate in determining the next ‘rule’ of future returns on any given interest rate.
Here’s what I came up with:
Double your money - rule of 72.
Triple your money - rule of 114.
Quadruple your money - rule of 144.
Quintuple your money - rule of 168.
Sextuple your money - rule of 186.
Septuple your money - rule of 202.
Octuple your money - rule of 216.
Nonuple your money - rule of 228.
Decuple your money - rule of 240.
OK, you got me. What I really wanted to do was be the first personal finance blogger to use the word ‘decuple’ in regards to your investments. Stupid? Sure. Interesting? You bet!
So if you are looking at getting a return of tenfold or decupling your money, it will take 30 years with an annual return of 8% (240 divided by 8). I suppose the first step is to find an investment to lock in a rate over 30 years. I’m still looking…
Stupidly Yours,
Matt
{ 4 comments… read them below or add one }
I thought decupling your money was just another word for divorce!
That would be ‘decoupling’. I had to use spell checker quite a bit to get all the words right. One letter off and it’s a whole new meaning.
These rules don’t hold fast with larger rates of return. With 168 for example, with a 21% ROR, you should be able to get to 5x return by the 8th year. but you only get to 4.59X growth…
@CS
You’re right about not holding entirely true with larger rates of return, but it’s fairly close. Besides, this is more a twist on personal finance, so if you have something that gives fixed 21% return over the life of the investment, please share!