Quick Math - The Rule of 72

Have you ever wondered how long it would take for you to double your money? The rule of 72 is a neat math trick to calculate this. This simple formula requires only one input, your expected rate of return.

Just divide it by 72 and bam! You got it.

# of Years to Double = 72/Annual Rate of Return

Putting the Rule in Action - Danny's Double

Danny has $5,000 to invest, with the goal of one day growing it to $10,000. He's planning on investing into a portfolio of low-cost stock ETFs.

Stocks typically averages an annual return of 7%, assuming he'll experience the same, how long would it take for his money to double?

Using the rule of 72, we find that it'll take about:

72/7 = 10.29 Years

So easy!

Flipping it Around

10 years is a long time, Danny was hoping to double his money in 5 years.

Luckily, we can flip the rule around to find the return he'd need to achieve this.

Annual Rate of Return = 72/# of Years to Double

Plugging in the numbers, we find Danny will need a return of:

72/5 = 14.4%

That's a pretty high return, even for stocks. Not impossible but definitely not something to count on. Danny's best bet would be to save more instead of hoping for higher than average returns.

Conclusion

The rule of 72 is a great tool, but it's not perfect, it's simply a rule of thumb. So for serious financial planning, you'll want the most accurate numbers. Though not fully accurate, it does get pretty darn close, especially when it comes to lower rates.

Rate of Return	Rule of 72 (Years)	Exact Number (Years)	Accuracy Rate
1%	72	69.66	96.75%
2%	36	35	97.22%
5%	14.4	14.21	98.68%
10%	7.2	7.27	99.04%
20%	3.6	3.8	94.74%
50%	1.44	1.71	84.21%
100%	0.72	1	72.00%

Comments

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event. Be specific. Give clear examples. Vague feedback equals dismissed feedback. Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes.

Bias For Clarity

Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction. Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud. Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end. The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off. Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea...

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer. Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong. "You're right!" feels good. We savour the moment, analyzing every detail. "You're wrong!" stings. We want to quickly forget, dismiss, and move on. When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie...

Herman Ye

Search