When thinking about wealth accumulation, it is really easy to have a default position of wondering how long it would take to double the value of an investment. It makes sense and feels appropriate. Why have one of something great when you could have two?

As I mentioned I came across the rule of 72 a number of years ago and will never forget it. The rule tells you how long it would take to double your money, or what rate of return you would need to achieve to double your money in a certain timeframe if you were to reinvest your earnings.

The equation is simple; all you need to do is divide 72 by the investment return or investment timeframe. The following examples demonstrate how the rule works (rounded to the nearest whole number):

What if we knew that we were able to generate an annual return of either 4%, 7% or 10%?

• A 4% annual return would mean your money would double in 18 years (72 / 4 = 18 years)
• A 7% annual return would mean your money would double in 10 years (72 / 7 = 10 years)
• A 10% annual return would mean your money would double in 7 years (72 / 10 = 7 years)

Alternatively, what if we set some goals and knew that we wanted to buy a new TV in 5 years, save for a family holiday in 8 years and buy a sports car in 15 years? Let’s also assume that we have already saved half of the money we need for each goal.

• For our new TV in 5 years, we would need to achieve an annual return of 14% (72 / 5 = 14% return)
• For our family holiday in 8 years, we would need to achieve an annual return of 9% (72 / 8 = 9% return)
• For our sports car in 15 years, we would need to achieve an annual return of 5% (72 / 15 = 5% return)

We know that investment returns are not always the same year on year, and it would be wrong to assume that you could always achieve the required rate of return (at least when we are talking about high returns). However, even though the rule of 72 is based on a set of assumptions, it is still a powerful tool to help understand what your expectations should be, and what level of risk you would need to take to achieve your goal of doubling your money.

Your Hewison Private Wealth adviser would have already accounted for all of your goals and objectives when preparing your initial Statement of Advice, and the strategy formulated for you is in a league beyond the Rule of 72. If you don’t have a financial adviser yet and feel that you need to develop a more tailored plan that takes into account your total financial situation, please don’t hesitate to connect with us.