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72 law is a calculation rule that estimates the number of years until the money doubles.
The formula is very simple.
2 times ≈ 72 ÷ Annual interest (%)For example, 6% of annual interest is 72 ÷ 6 = about 12 years.
With 72 law, you can intuitively understand why time is important for the power of profit, the size of yield, and long-term investment. In this article, we will organize the meaning, usage, concrete examples, and points of attention for beginners.
What is 72 law?
72 law is a method of approximating the period until the asset is doubled by double-、.
仕組み Interest is a mechanism for profits. If you reinvest the profit obtained by the investment, you will get the return not only to the original book, but also to the previous profit.
72 laws are useful when you want to see this compound effect.
It is not a strict calculation, but it is useful enough for beginners to grab the speed of asset formation.
Calculator
The formula is as follows:
2 times ≈ 72 ÷ Annual interest (%)The annual interest is the average yield per year.
For example, if the average 6% is 6%, it is calculated as follows:
72 ÷ 6 = 12In other words, it is about 12 years until the asset is doubled if it is managed by 6% annual interest.
Example
By using the 72 law, you can see the difference between yields.
| Year | 2 times |
|---|---|
| 2% | About 36 years |
| 3% | 24 years |
| 4% | 18 years |
| 6% | About 12 years |
| 8% | About 9 years |
| 9% | About 8 years |
| 12% | About 6 years |
Even in the same asset, the number of years until doubled when the average yield changes greatly.
However, it is necessary to pay attention to the risk that the higher the yield, the greater the risk.
Why use 72
However, we use a pair of counts for accurate calculation of compound interest.
However, it is not necessary to use fine formulas every time in daily investment decisions. 72 is easy to divide by 2, 3, 4, 6, 8, 9, 12, etc.
Therefore, in the financial and asset management world, 72 laws are often used to understand how long the assets will double.
Points to understand by beginners
The important thing that you know in 72 law is that the yield difference is a big difference in the long term.
For example, 2% annual interest will take about 36 years until the asset doubles. On the other hand, it is about 12 years if the annual interest is 6%.
This difference is a big difference in the long term even if it looks small in the short term.
However, it is not a story that the yield should be higher. Risk is included in the return. It is important to keep the operation longer to meet your risk tolerance rather than aiming for high yield.
Long-term investment
The law of 72 is a good idea for long-term asset formation such as Nisa, iDeCo, and 資産ity investment.
For example, if you start investing at the age of 30 or begin at age of 45, you can use the same yield. The longer the time, the more effective it is, the faster it is.
72 law can be used in the following situations:
- Estimate the speed of increasing old assets
- Has a long-term image of investment
- Compare expected yields of investment products
- Considering the period when the value of money becomes half inflation
For example, if an inflation of 3% per year continues, the price is doubled by 24 years. This is useful not only for asset management but also for inflation.
Common misunderstandings
The law of 72 does not guarantee that the same yield will be taken every year.
In the actual market, there are years to rise and fall. The number of 6% per year means that it can be cleaned by 6% each year.
In addition, you need to pay attention to the products that cause abnormality. There is a possibility that there is a risk for high yields such as double the assets in a short time.
72 laws are useful, but please check the risk, fees, taxes, and investment period in investment decisions.
- 72 Laws approximate the number of years the asset doubles
- The calculation formula is "72 ÷ Annual interest (%)"
- Easy to understand the power of compound interest
- The difference between yield and time in long-term investment
- There is a risk for high yield, so you need to be careful
First of all, let’s understand that time and interest become a major weapon of asset formation.