Comments on: The Rule of 72 Doesn't Always Work http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/ A personal finance blog written by Preet Banerjee Fri, 25 May 2012 08:03:33 +0000 hourly 1 http://wordpress.org/?v=3.1.2 By: Nicolas http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1967 Nicolas Fri, 25 Apr 2008 03:24:57 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1967 <p>haha</p><p>a maths buff.</p><p>Thank you for correcting. That's why I chose a career path which requires little to no numbers</p><p>Nicolas</p> haha

a maths buff.

Thank you for correcting. That’s why I chose a career path which requires little to no numbers

Nicolas

]]> By: Potato http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1966 Potato Fri, 25 Apr 2008 01:38:50 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1966 <p><blockquote>Will a maths buff comfort me on this?</blockquote></p><p>No.</p><p>Math can be beautiful, educational, entertaining, illustrative, illuminating, inspirational, and even agreeable. It can be a secret obsession, or the centrepiece of a lifelong lecturing career, a tool or a pasttime. But it is never, never comforting.</p><p>:)</p><p>Anyhow, you're making two separate mistakes there Nicolas. First: the 72 in the rule of 72 is <i>also</i> a percentage. If you prefer to use a rate of return as a fraction of 1 (0.72 instead of 72%) then use the "Rule of 0.72"</p><p>So it's 72/72 = 1 or 0.72/0.72 = 1.</p><p>Secondly, the result of that quick division step is the doubling time. So if you come out with 1 (or, with a minor mistake, 100), then that's the (very approximate) doubling time for your rate of return of 72% (or 0.72%). It doesn't suddenly turn around and give you the rate of return needed. You can see this by picking another rate of return.</p>
Will a maths buff comfort me on this?

No.

Math can be beautiful, educational, entertaining, illustrative, illuminating, inspirational, and even agreeable. It can be a secret obsession, or the centrepiece of a lifelong lecturing career, a tool or a pasttime. But it is never, never comforting.

:)

Anyhow, you’re making two separate mistakes there Nicolas. First: the 72 in the rule of 72 is also a percentage. If you prefer to use a rate of return as a fraction of 1 (0.72 instead of 72%) then use the "Rule of 0.72"

So it’s 72/72 = 1 or 0.72/0.72 = 1.

Secondly, the result of that quick division step is the doubling time. So if you come out with 1 (or, with a minor mistake, 100), then that’s the (very approximate) doubling time for your rate of return of 72% (or 0.72%). It doesn’t suddenly turn around and give you the rate of return needed. You can see this by picking another rate of return.

]]> By: Nicolas http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1965 Nicolas Fri, 25 Apr 2008 00:26:52 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1965 <p>Now, I haven't done maths for while but something doesn't make sense in your proposition.</p><p>72/72% (0.72) does not equal 1.</p><p>72/0.72 equals 100</p><p>or 100%=1 year</p><p>In other words, you need a return of 100% in one year to double your investment in one year. So the rule works.</p><p>Will a maths buff comfort me on this?</p><p>Nicolas</p> Now, I haven’t done maths for while but something doesn’t make sense in your proposition.

72/72% (0.72) does not equal 1.

72/0.72 equals 100

or 100%=1 year

In other words, you need a return of 100% in one year to double your investment in one year. So the rule works.

Will a maths buff comfort me on this?

Nicolas

]]> By: FFBlog.ca http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1964 FFBlog.ca Thu, 24 Apr 2008 21:04:46 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1964 <p>Great Post! Thanks for clarifying the inaccuracies of this general rule of thumb when factoring in higher rates of return. I thought I'd never use logs again after first year Calculus.</p> Great Post! Thanks for clarifying the inaccuracies of this general rule of thumb when factoring in higher rates of return. I thought I’d never use logs again after first year Calculus.

]]> By: Preet http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1963 Preet Thu, 24 Apr 2008 20:18:52 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1963 <p>MJ: See previous day's post on "How easy is it to become a financial advisor".</p> MJ: See previous day’s post on "How easy is it to become a financial advisor".

]]> By: Michael James http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1962 Michael James Thu, 24 Apr 2008 19:29:50 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1962 <p>The first time I heard about the rule of 72 was from an insurance salesman. After scratching for a while I tried to tell him that it is just an approximation based on the fact that ln(1+r) is approximately equal to r for small r. He insisted that the rule was 100% accurate. I guess he was right for one value of r anyway.</p> The first time I heard about the rule of 72 was from an insurance salesman. After scratching for a while I tried to tell him that it is just an approximation based on the fact that ln(1+r) is approximately equal to r for small r. He insisted that the rule was 100% accurate. I guess he was right for one value of r anyway.

]]> By: Potato http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1961 Potato Thu, 24 Apr 2008 13:46:11 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1961 <p>Well, for most real-world applications of a doubling rule like this your rate of return won't be consistent enough over the time period for the inaccuracies of the approximation to matter... and it saves having to see that glazed over look in people's eyes when you hand them a logarithm.</p><p>t<i>[doubling]</i> = ln(2)/ln(1+r)</p> Well, for most real-world applications of a doubling rule like this your rate of return won’t be consistent enough over the time period for the inaccuracies of the approximation to matter… and it saves having to see that glazed over look in people’s eyes when you hand them a logarithm.

t[doubling] = ln(2)/ln(1+r)

]]> By: fghj http://wheredoesallmymoneygo.com/the-rule-of-72-doesnt-always-work/#comment-1960 fghj Thu, 24 Apr 2008 09:15:57 +0000 http://symbiantcapital.com/2008/04/24/the-rule-of-72-doesnt-always-work/#comment-1960 <p>wow... people and math.... its not newtonian physics being taken over by special relativity... its just simple math and a bad original rule... </p> wow… people and math…. its not newtonian physics being taken over by special relativity… its just simple math and a bad original rule…

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