Understand the Rule of 72 at a glance, the most magical formula in the investment world!

1. If the annual investment return is 10%, your principal will double after 7.2 years.

2. If you invest with a return of 10% per month, the principal will double after 7.2 months.

3. If you invest with a return of 10% per day, the principal will double after 7.2 trading days.

01. What is the Rule of 72?

Anyone with a bit of financial knowledge has probably done this calculation: how long will it take for assets to double in the context of wealth management?

Of course, this can be understood through a simple middle school math operation: (1+i)^n=2, where i is the investment return rate, and the exponent is the time to double assets.

But for professionals in the financial sector, such problems can be calculated mentally.

Because there is a particularly magical number: 72.

The magic of this number lies in:

Divide 72 by your 'annual investment return', the result is the number of years needed for your assets to double.

02. The Magic of the Rule of 72

This rule can not only help you estimate the approximate interest in the complex world of mathematics, but also serve as a reference for long-term investment planning.

Based on the same logic, if I want to double my principal within 5 years, what annual return do I need? The answer is: 72/5 = 14.4%.

Using the 'Rule of 72', let’s compare how long it takes for various mainstream investment methods to double assets:

1. Bank savings: Currently, the 1-year fixed deposit interest rate is 1.5%, the time required for the principal to double is: 72/1.5 = 48 years.

2. Government bonds: Currently, the 1-year government bond yield is about 2.2%, the time required for the principal to double is: 72/2.2 ≈ 33 years.

3. Yu'ebao: Currently, the annual return is about 2.8%, the time required for the principal to double is: 72/2.8 ≈ 26 years.

4. Cryptocurrency financial management: Currently, the average annual return is about 12%, the time required for the principal to double is: 72/12 = 6 years.

03. The Power of Compound Interest

The Rule of 72 can also help us easily estimate the power of compound interest.

Imagine, if you invested 1000 yuan when you were 20 years old, with an average annual return of 15%, how much would that investment be worth when you are 70 years old, 50 years later? Without a calculator, try the Rule of 72.

With an annual return of 15%, it takes about 5 years to double (72/15), and about 10 times in 50 years (50/5). Doubling 10 times is equivalent to 2^10, 1024 times, for simplicity, we estimate it as 1000. So after 50 years, when you are 70 years old, the initial 1000 yuan would become 1000 yuan x 1000 times = 1 million yuan. Doesn’t it seem incredible? This is why Einstein considered compound interest to be the 8th wonder of mankind.

04. Buffett's Rule of 72

One of Buffett's stock selection criteria when he was young was to require a 15% annual return. He also calculated that if his investment career lasted 80 years, his investment could double 16 times in 80 years, 2^16 = 65,000 times!

The legendary Buffett not only achieved an average annual return of over 15%, but he is also about to reach an investment career of 80 years.

Finally, if brothers do not see investment as gambling, but as savings and financial management, it can greatly reduce the difficulty of investing.

Let’s encourage each other!