The Rule of 72 is a simple, powerful mental math shortcut that every investor should know. It tells you approximately how long it will take for your investment to double at a given interest rate.
The Formula
Years to Double = 72 ÷ Interest Rate
Where interest rate is expressed as a whole number (e.g., 7 for 7%)
Examples
| Interest Rate | Calculation | Years to Double |
|---|---|---|
| 2% | 72 ÷ 2 | 36 years |
| 4% | 72 ÷ 4 | 18 years |
| 6% | 72 ÷ 6 | 12 years |
| 7% (stock market avg) | 72 ÷ 7 | ~10 years |
| 8% | 72 ÷ 8 | 9 years |
| 10% | 72 ÷ 10 | 7.2 years |
| 12% | 72 ÷ 12 | 6 years |
Why 72?
The number 72 is used because it's a good approximation of the natural logarithm calculation that determines actual doubling time. Plus, 72 is divisible by many common numbers (2, 3, 4, 6, 8, 9, 12), making mental math easier.
💡 Pro Tip: The Rule Works Both Ways
You can also use it to find what rate you need to double your money in a specific time: Rate = 72 ÷ Years. Want to double your money in 6 years? You'll need about a 12% return.
Practical Applications
- Comparing investments: Quickly see which investment will grow faster
- Setting expectations: Understand realistic timelines for wealth building
- Understanding inflation: At 3% inflation, prices double every 24 years
- Credit card awareness: At 18% interest, debt doubles in just 4 years!
Limitations
The Rule of 72 is an approximation. It works best for interest rates between 6% and 10%. For very low or very high rates, the Rule of 69.3 or Rule of 70 may be more accurate — but 72 is easier for mental math.
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