George M. Hiller
Companies LLC
1110 Monarch Plaza
3414 Peachtree Rd. NE
Atlanta, GA 30326

404-365-0222
800-359-0222

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Financial Planning - The Rule of 72

The Rule of 72 is a useful guide for quickly estimating how long it will take for an investment to double in value. To apply the rule you simply divide the expected growth rate or interest rate to be earned on an investment into 72. The answer tells you approximately how many years it will take for the investment to double in value.

For example, assume you could invest in CDs earning 6% per year. Divide 6 into 72 and you come up with 12. This means that it would take 12 years for your investment in CDs to double in value.

Now, assume you could invest in a large capitalization stock mutual fund expected to earn on average at least 10% per year. Divide 10 into 72 and you come up with 7.2. This means that it would take 7.2 years for your investment in a large capitalization stock mutual fund to double in value.

Finally, assume you could invest in a small capitalization stock mutual fund expected to earn on average at least 12% per year. Divide 12 into 72 and you come up with 6. This means that it would take 6 years for your investment in a small capitalization stock mutual fund to double in value.

Question: If you have $500,000 in an IRA rollover account earning 10% per year, how long will it take for the account to reach a value of $1,000,000? Apply the rule of 72 and you come up with the answer; 7.2 years.

© Copyright 2006 George M. Hiller Companies, LLC. All rights reserved. 1110 Monarch Plaza, 3414 Peachtree Rd., N.E., Atlanta, Georgia, 30326. Although data are gathered from reliable sources, George M. Hiller Companies cannot guarantee completeness and accuracy.
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