Question 1

Simple Interest

Accepted Answer

is calculated exclusively on the original principal amount. If you invest $1,000 at 5% simple interest, you earn exactly $50 every single year, forever. Compound Interest, however, is the force that makes the Rule of 72 work. With compound interest, the interest you earn is added back to your principal, and in the next period, you earn interest on both the original principal and the accumulated interest. In the $1,000 at 5% example, you earn $50 in year one. In year two, you earn 5% on $1,050, resulting in $52.50. Over decades, this snowball effect leads to massive exponential growth.

Question 2

Who exactly invented the Rule of 72?

Accepted Answer

There is no single credited inventor of the Rule of 72. The earliest known written record of the rule was published in 1494 by the Italian mathematician and friar Luca Pacioli in his book Summa de arithmetica. However, Pacioli did not claim to have discovered it; he recorded it as an existing rule of thumb that was already being widely used by merchants, bankers, and money lenders during the Italian Renaissance.

Question 3

Does the Rule of 72 work if I add money to the investment every month?

Accepted Answer

No, the standard Rule of 72 does not account for ongoing, regular contributions. It is specifically designed to calculate the doubling time of a single, isolated lump sum of money that is left untouched to compound over time. If you are actively adding money to the principal every month, your total balance will double much faster than the Rule of 72 predicts. For ongoing contributions, you must use a financial calculator or a spreadsheet function like NPER.

Question 4

Can I use the Rule of 72 for timeframes other than years, like months or days?

Accepted Answer

Yes, the mathematical principle applies to any compounding period, provided the interest rate matches that specific period. If an incredibly predatory short-term loan charges 5% interest per month, you divide 72 by 5 to find that the debt will double in exactly 14.4 months. The unit of time output by the calculation will always perfectly match the unit of time tied to the interest rate.

Question 5

Why does my bank account double slower than the Rule of 72 predicts?

Accepted Answer

If your actual bank account is growing slower than your calculation, you are likely failing to account for inflation, taxes, or bank fees. Furthermore, the Rule of 72 requires that you reinvest 100% of the interest earned. If your bank pays out your interest as cash to your checking account and you spend it, your principal is not compounding. You must leave the interest in the account to earn its own interest for the rule to work.

Question 6

What is a "good" doubling time for a retirement portfolio?

Accepted Answer

Most conservative financial advisors aim for a diversified portfolio that delivers a 7% real return (after inflation). Dividing 72 by 7 yields a doubling time of approximately 10.2 years. Therefore, doubling your purchasing power roughly once every decade is widely considered the gold standard for sustainable, long-term wealth building without taking on excessive, highly speculative risks.

Question 7

Is it better to use 70, 72, or 69.3?

Accepted Answer

For the vast majority of everyday consumer finance (interest rates between 4% and 12% compounding annually or monthly), the number 72 is the best choice because it is incredibly easy to divide mentally and highly accurate for that range. You should only use 70 for very low rates like inflation or population growth (1% to 3%). You should only use 69.3 if you are specifically dealing with continuous compounding algorithms in advanced mathematical finance.

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