How To Double Your Investment Using The Rule of 72?

“The most powerful force in the universe is compound interest” – Albert Einstein

Compound interest is interest that accrues based on the total balance of principal and accumulated interest.

If you have read some financial experts and gurus, you may always hear from them the word compound interest. They usually relate this word to achieving a very good amount of riches if an individual may invest earlier during the time of their life.  This notion is truly amazing!

One of the great by – product of compound interest calculation is "The Rule of 72”.

The Rule of 72 is a great mathematics shortcut that can be used to quickly calculate the years your money could get doubled or the rate of returns that can make your investment twofold given the number of years you will hold your investment in a certain fund or investment.

To give a clear illustration let’s do some computations.

A. Years to Double Your Investment

FORMULA:  Years to Double = 72 / rate of return

EXAMPLE:

• If I will investment of P100,000 in BPI Equity Value fund, how many years will my investment get doubled given an average rate of return of 14.40% per year?

Years to Double = 72/14.40 = 5 years

•  At 10% annual rate of return, how many years will my BDO Equity Fund will get doubled?

Years to Double = 72/10 = 7.2 years

B. Interest Rate to Double Your Investment

FORMULA: Compound Interest Rate = 72 / number of years

EXAMPLE:

• If I will invest P25,000 in a mutual fund, how much compound interest rate will make my investment doubled in 10 years?

          Interest Rate = 72/10 years  = 7.2% per annum

• How much compound interest rate will make my trust fund investment of P100,000 to grow twice if I will hold in the said fund for 20 years?

         Interest Rate = 72/20 = 3.6% per annum

The above mentioned examples are just few of the wide applications of the Rule of 72 in approximating numbers. This article was presented to readers to provide them a very versatile tool that can help them make quick mental math calculations when estimating numbers in relation to their investments.

Happy investing Juan!