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Rule 72: What Is It for and How to Use It? – R Blog

ByVictor Gryazin

Aug 6, 2022
Rule 72: What Is It for and How to Use It? - R Blog

This overview is devoted to such a method of assessing investments as Rule 72. We will see how it works and how it can be used.

What is Rule 72

Rule 72 is a simplified calculation method that shows how fast your investments will double if the profitability remains stable. Calculation of complicated percentage (profitability of constant reinvestments) is a really difficult mathematical operation that makes most people grab a calculator. Hence, for less accurate calculations, right on your lap, investors use Rule 72.

By this method, any person can simply count in their mind and fancy the magic of complicated percentage.

If you want to know how much time you will need to double your assets if the interest rate remains set, this Rule is the fastest option. It was for the first time mentioned in the works of an Italian mathematician Fra Luca Bartolomeo de Pacioli.

Calculation formula for Rule 72

The mathematical formula for Rule 72 looks as follows:

T = 72 / R


T is the time during which the capital be doubled;
R is the interest rate.

When it comes to assessing the errors of such estimations, you get better results when the interest rate is about 8%. Nonetheless, you can feel confident when the interest rate is between 1% and 15%.

When the profitability is higher than this, the calculation becomes too inaccurate. In the end, nothing can be compared to the real calculations of complicated percentage with special calculators.

Example of calculations by Rule 72

For example, let us put various interest rates to the formula. The method is applicable to banking accounts, bonds, and more. If the interest rate is:

  • 1%, the capital will double in 72 years (72/1 = 72);
  • 2% — in 36 years (72/2 = 36);
  • 5% — in 14.4 years (72/5 = 14.4);
  • 8% — in 9 years (72/8 = 9);
  • 15% — in 4.8 years (72/15 = 4.8).

How to use Rule 72 in finance

There are several main ways of using Rule 72 in finance:

What is the difference between Rule 72, Rule 70, and Rule 69

Apart from Rule 72, you can use Rule 70 and Rule 69 with the same goals. These rules help to simplify calculations or calculate more accurately depending on the period of interest payments.

For example, Rule 69 is most accurate when interest is paid daily. For monthly and annual payments, Rule 72 is normally used. Rule 70 is applicable for the sake of simplicity.

Anyway, each of these rules can be used for fast calculations with a set and relatively low error level. Choose the rule that is better for your goal.

Bottom line

Rule 72 is a simple and comfortable way of calculating the attractiveness of investments right in your mind. This is quite an innacurate way that makes certain errors but gives an opportunity to assess the profitability of investments without going deep in maths.

However, it should be remembered that the market is full of various factors that influence the efficacy of investments and skips the rule.

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Material is prepared by

Has traded in financial markets since 2004. The knowledge and experience he has acquired constitute his own approach to analyzing assets, which he is happy to share with the listeners of RoboForex webinars.

Image and article originally from blog.roboforex.com. Read the original article here.