Want to Double Your Money? The “Rule of 72” Tells You How

Bill Veeck once bought the Chicago White Sox baseball
team franchise for $10 million and then sold it 5 years
later for $20 million. In short, he doubled his money in
5 years. What compound rate of return did Veeck earn
on his investment?
A quick way to handle compound interest problems
involving doubling your money makes use of the “Rule
of 72.” This rule states that if the number of years, n, for
which an investment will be held is divided into the value
72, we will get the approximate interest rate, i, required
for the investment to double in value. In Veeck’s case,
the rule gives
72/n = i
or
72/5 = 14.4%
Alternatively, if Veeck had taken his initial investment
and placed it in a savings account earning 6 percent com-
pound interest, he would have had to wait approximately
12 years for his money to have doubled:
72/i = n
or
72/6 = 12 years
Indeed, for most interest rates we encounter, the
“Rule of 72” gives a good approximation of the interest
rate – or the number of years – required to double your
money. But the answer is not exact. For example, money
doubling in 5 years would have to earn at a 14.87 percent
compound annual rate [(1 + 0.1487)5 = 2]; the “Rule of
72” says 14.4 percent. Also, money invested at 6 percent
interest would actually require only 11.9 years to double
[(1 + 0.06)11.9 = 2]; the “Rule of 72” suggests 12.
However, for ballpark-close money-doubling approxima-
tions that can be done in your head, the “Rule of 72”
comes in pretty handy.