Microsoft Excel is an extraordinarily handy bookkeeping software program. But did you know Excel can also be used to perform the Rule of 72 calculation? For the uninitiated, this rule is a simple mathematical shortcut that helps investors estimate the number of years it would take to double their money, given a known interest rate, or a known compounding annual rate of return. For investors standing at a crossroads, who are faced with deciding between two or more investment options, the Rule of 72 can help them make more educated decisions that best align with their risk tolerance, time horizons, and long-term investment goals.
A Usage Example
Let us assume you wish to compare the approximate number of years it would take for five separate investments to double, with expected rates of return of 5%, 10%, 13%, 15%, and 20%. Using Microsoft Excel, this exercise may be achieved by taking the following iterative steps:
- Increase the widths of columns A, B, C, and D by right-clicking on each respective column.
- Left-click on Column Width and change the value to 35.
- Make the typeset bold for the titles by pressing the CTRL and B keys together.
- Enter "Expected Rate of Return" in cell A1, "Actual Number of Years" in cell B1, "Number of Years Using the Rule of 72" in cell C1, and "Difference" in cell D1.
- Enter "5" into cell A2, "10" into cell A3, "13" into cell A4, "15" into cell A5, and "20" into cell A6. The formula used to calculate the actual number of years it takes to double your investment is the natural log of two divided by the natural log of one plus the expected rate of return.
The values in cells A2 through A6 must be expressed in percentage terms to calculate the actual number of years it would take for the investments to double. Therefore, the values must be divided by 100. To accomplish this, take the following steps:
- In cell B2, enter "=(LN(2)/(LN(1+A2/100)))".
- Left click and hold on the bottom right corner of cell B2 and drag the cell down to cell B6.
- Now, use the rule of 72 to calculate the approximate number of years by entering "=72/A2" into cell C2, "=72/A3" into cell C3, "=72/A4" into cell C4, "=72/A5" into cell C5 and "=72/A6" into cell C6.
FAQs
Left click and hold on the bottom right corner of cell B2 and drag the cell down to cell B6. Now, use the rule of 72 to calculate the approximate number of years by entering "=72/A2" into cell C2, "=72/A3" into cell C3, "=72/A4" into cell C4, "=72/A5" into cell C5 and "=72/A6" into cell C6.
What is the formula for doubling time of investments? ›
Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
How do you find how long it takes for an investment to double? ›
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.
When using the Rule of 72 your investment will double in value in how many years with an interest rate of 8 percent? ›
For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money. Note that a compound annual return of 8% is plugged into this equation as 8, and not 0.08, giving a result of nine years (and not 900).
What does the Rule of 72 calculate? ›
The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. Dividing 72 by the annual rate of return gives investors a rough estimate of how many years it will take for the initial investment to duplicate itself.
Is the Rule of 72 a reliable way to estimate doubling time? ›
Rules of 72, 69.3, and 69
Rules of 69.3 and of 69 are also methods of estimating an investment's doubling time. The rule of 69.3 is considered more accurate than the Rule of 72, but can be much more troublesome to calculate. Therefore, investors typically prefer to use a rule of 69 or 72 rather than the rule of 69.3.
How do you calculate doubling time? ›
To figure out how long it would take a population to double at a single rate of growth, we can use a simple formula known as the Rule of 70. Basically, you can find the doubling time (in years) by dividing 70 by the annual growth rate.
What is doubling time rule of 70? ›
The Rule of 70 Formula
Hence, the doubling time is simply 70 divided by the constant annual growth rate. For instance, consider a quantity that grows consistently at 5% annually. According to the Rule of 70, it will take 14 years (70/5) for the quantity to double.
What is the Rule of 72 which amount will double faster? ›
At 6% interest rate i.e. (72/6) it will take 12 years for your money to double. Similarly, At 9% interest rate, it would take eight years for your money to double. And, at 12% interest rate, it would take six years for your money to double.
What rule estimates how long it will take to double your investment? ›
Simply put, the Rule of 72 offers a quick and straightforward method for investors to estimate the number of years required to double their money at a consistent rate of return. The formula is simple. You divide 72 by your expected annual rate of return.
The rule of 8-4-3 when it comes to compounding indicates a style of investment that accelerates growth with time. Initially, a corpus doubles within 8 years through an average annual return of 12% subsequently another doubling happens for the same period after another 4 years following its initial setting up.
How long will it take for an investment to double at a 6% per year? ›
You simply take 72 and divide it by the interest rate number. So, if the interest rate is 6%, you would divide 72 by 6 to get 12. This means that the investment will take about 12 years to double with a 6% fixed annual interest rate.
Do investments really double every 7 years? ›
1 At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same period, you could expect to double your money in about 12 years (72 divided by 6).
How long does it take to double your money in the stock market? ›
All you do is divide 72 by the fixed rate of return to get the number of years it will take for your initial investment to double. You would need to earn 10% per year to double your money in a little over seven years.
How many years are needed to double a $100 investment using the rule of 72? ›
To find the approximate number of years needed to double an investment, divide 72 by the interest rate. In this case, with an interest rate of 6.25%, divide 72 by 6.25, which is approximately 11.52. Therefore, it would take approximately 11.52 years to double the $100 investment.
Which of the following formulas is used to calculate the Rule of 72? ›
Understand the Rule: Familiarize yourself with the formula. Remember, the number of years to double = 72 ÷ annual interest rate.
How do you find the rule in Excel? ›
FIND function
- FIND(find_text,within_text,start_num)
- Find_text is the text you want to find.
- Within_text is the text containing the text you want to find.
- Start_num specifies the character at which to start the search. The first character in within_text is character number 1. If you omit start_num, it is assumed to be 1.
The rule is this: 72 divided by the interest rate number equals the number of years for the investment to double in size. For example, if the interest rate is 12%, you would divide 72 by 12 to get 6. This means that the investment will take about 6 years to double with a 12% fixed annual interest rate.
What is the formula to calculate 70 percent of a number in Excel? ›
To calculate a percentage in Excel, you can use the formula: "=number/total*100". Replace "number" with the specific value you want to calculate a percentage of and "total" with the overall value or sum. Multiply the result by 100 to get the percentage representation.
