The Rule of 72

For most normal values of interest, the interest rate multiplied by the number of years it takes for the principal to double equals 72.

This means that property, which doubles in value every seven to nine years, has 8% - 10% growth per annum. 9 years * 8% = 72. 7 years * 10.3% = 72.

This rule only works if the interest rate (or growth) is not "very small" and not "very large". The proper equation is 2=(1+rate)^years. If you works this out [edit: that's leprechaun speak; "If you work this out" is the English.] , you will find that it comes to rate*years=72 in most cases.

If you take out a car loan at 12%, after 6 years of payments you have paid twice the cost of the car. 6*12=72.

This equation is an easy way of determining what prices will be in the future, if you know the growth rate. This information is not crucial, but it does help in working things out in your head for "what-ifs".


Note. Figures in this article may be of a historic nature and may not reflect the circumstances at the time of posting. Posts in this blog should not be taken as investment advice, merely as views of a general nature. Individuals should seek qualified advice tailored to their specific circumstances from licensed advisors.