Rule of 72

Rule of 72 is used to estimate how long it will take to double the principle number, given a growth rate.

In other words: Days to double the principal(d) = 72/(growth rate)

For example, suppose we want to find how many days it will take to double my investment of $1000 in US markets. We assume that future returns are similar to historical returns. US markets have delivered 8% every year over the last 50-60 years.

So our growth rate will be 8% in this case.

Applying the rule of 72:

d = 72/8 d = 9 years

It will take about nine years for my $10,000 to become $20,000.

Let's keep this going, in another nine years, the principal will double again, except this time the principle is $20,000. $2000 will become $40,000. If we keep this going for another 9 years, $40,000 will become $80,000.

In three 9 year periods or 27 years, $10,000 has turned into $80,000.

Let's take a more topical example,

The spread rate of COVID-19 is about 20% per day in the US. 72/20 = 3.6 days; Every 3-4 days number of cases will double.

That is what we see int the data. There were about 20,000 cases on March 19th, on March 23rd there were 50,000 and on March 26th 100,000 cases.

Exponential growth is hard to comprehend for our brains; tools like the rule of 72 helps put things in perspective quickly.