What Is Rule of 72?
The Rule of 72 is a shortcut to estimate how long it takes for an investment to double at a given annual return. Just divide 72 by the annual interest rate.
Definition
The Rule of 72 is a simple mental math shortcut: divide 72 by your annual rate of return, and you get the approximate number of years it takes for your investment to double. At 8% annual returns, your money doubles in about 72/8 = 9 years. At 6%, it doubles in 72/6 = 12 years. At 12%, it doubles in 72/12 = 6 years.
The rule works for any fixed rate of growth, not just investments. Credit card debt at 24% APR doubles in 72/24 = 3 years if unpaid. Inflation at 3% cuts your purchasing power in half in 72/3 = 24 years. The Rule of 72 puts the power (and danger) of compounding into intuitive, memorable terms.
The rule is an approximation that works best for rates between 4-15%. For very high or very low rates, the Rule of 69.3 or Rule of 70 are more accurate. But for everyday mental math and back-of-napkin calculations, 72 works perfectly because it is divisible by 2, 3, 4, 6, 8, 9, and 12 -- making the division easy in your head.
Real-World Example
You invest $50,000 at 10% annual returns. Using the Rule of 72: 72/10 = 7.2 years to double. Your money reaches $100,000 in about 7 years, $200,000 in 14 years, $400,000 in 21 years, and $800,000 in 28 years. Four doublings turn $50,000 into $800,000 without adding a single dollar. Now consider the flip side: at 3% inflation, the purchasing power of $50,000 is halved to $25,000 (in today's dollars) in 72/3 = 24 years. The Rule of 72 makes both the magic and the menace of compounding instantly clear.
Why It Matters
The Rule of 72 is the most useful financial rule of thumb in existence. It lets you instantly evaluate investment returns, understand the cost of debt, grasp the impact of inflation, and compare financial options -- all without a calculator. It also makes the case for early investing viscerally clear: at 10% returns, money invested at age 25 has four doublings (16x) by age 55. Money invested at age 45 only has one doubling (2x). Time, not amount, is the most important variable.
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Frequently Asked Questions
How accurate is the Rule of 72?
Very accurate for rates between 4-15%. At 8%, the rule says 9.0 years; the exact answer is 9.006 years. At 2% or 20%, the approximation is slightly less accurate but still useful for quick mental math.
Does the Rule of 72 work for debt?
Yes. Credit card debt at 18% APR doubles in 72/18 = 4 years if you make no payments. This is why minimum payments are a trap -- the interest compounds and the balance grows rapidly.
What is the Rule of 70?
A slightly more accurate variation using 70 instead of 72. The Rule of 70 gives better estimates for lower rates. But 72 is preferred for mental math because it has more factors (divisible by 2, 3, 4, 6, 8, 9, 12).
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