Rule of 72, 114 and 144 Definition, Formula, Examples

It can also tell you the annual rate of return offered by an investment given how many years it will take to double in value. When calculating the Rule of 72 for any investment, note that the formula is an estimation tool and the years are approximate. The Rule of 72 mainly works with common rates of return that are in the range of 5% to 12%, with an 8% return as the benchmark of accuracy.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Pinnacle Investment Management Group and Pro Medicus. The Motley Fool Australia has positions in and has recommended Pinnacle Investment Management Group. Whether you’re saving for retirement, planning a major purchase, or just curious about how your money can grow, the Rule of 72 is an essential concept to have in your financial toolkit. Remember, a savings account or a bond will pay an interest rate, and stock will have a dividend yield.

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Rule of 114 means, it is similar to Rule 72 by all ways expect one item, Rule of 114 will assist you to figure out the time duration required to triple your capital investment by using compounding interest formula. Rule of 114 definition says that divide 114 by interest rate to get the years essential to triple your money. Many times, it is been noticed that Rule of 115 is been used instead of Rule of 114. As Rule of 115 means it shows how much time taken to triple your investment capital, it is again similar to rule 114 in all the ways.

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The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. You take the number 72 and divide it by the investment’s projected annual return. The result is the number of years, approximately, it’ll take for your money to double. Rule of 144 definition says that divide 144 by interest rate to get the years essential to quadruple your money.

Tax-advantaged accounts like 401(k)s and individual retirement accounts (IRAs) can mitigate this impact. Before investing, it’s always prudent to carry out thorough due diligence to understand the potential risks of any investment and how these risks impact estimated returns. Say you invest $50,000 in a fund that you expect to generate a return of 6% a year, based on the fund’s average annual return over the last decade. If the investment is compounding continuously rather than compounding annually, the Rule of 69.3 what is the rule of 72 offers a more accurate estimation. Luckily, there’s a mathematical shortcut to help you estimate the future value of an investment.

Where Is the Rule of 72 Most Accurate?

You can also use the Rule of 72 to make choices about risk versus reward. If, for example, you have a low-risk investment that yields 2 percent interest, you can compare the doubling rate of 36 years to that of a high-risk investment that yields 10 percent and doubles in seven years. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

Use this rule to quickly find out when your investments will double in value

For more precise data on how your investments are likely to grow, use a compound interest calculator that’s based on the full formula. The Rule of 72 is an estimate, and more accurate at around 8 percent interest. The further the interest rate or inflation rate is from 8 percent, the less precise the result will be. For daily or continuous compounding, using 69.3 in the numerator gives a more accurate result. Some people adjust this to 69 or 70 for the sake of easy calculations.

• Using the Rule of 72, we can determine a compound annual growth rate (CAGR) of approximately 7%.
• It helps you understand how fast your money can realistically grow while accounting for speed bumps like fees, inflation, and taxes along the way.
• The rule of 72 primarily works with interest rates or rates of return that fall in the range of 6% and 10%.
• Higher interest rates and longer time frames cause the Rule of 72 to become less accurate.

Ever wondered how long it’ll take to double your money with interest? Many investors prefer to use the Rule of 69.3 rather than the Rule of 72. For maximum accuracy—particularly for continuous compounding interest rate instruments—use the Rule of 69.3. The natural logarithm is the amount of time needed to reach a certain level of growth with continuous compounding. Notice that the Rule of 72 is less precise as rates of return increase.

Since their time frame shrinks, doubling their money becomes less important. Instead, they prioritize the security of their nest egg by choosing lower-risk investments. This ensures they have a predictable and stable source of income later in life. The Rule of 72 formula provides a reasonably accurate, but approximate, timeline—reflecting the fact that it’s a simplification of a more complex logarithmic equation. To get the exact doubling time, you’d need to do the entire calculation.