Finance guide
What Is the Rule of 72?
The Rule of 72 is a simple way to estimate how long it takes for an investment to double. It is widely used in finance to quickly understand the impact of compounding over time.
Rule of 72 formula
Years to Double ≈ 72 / Annual Return Rate (%)
Divide 72 by the annual return rate to estimate how many years it takes for an investment to double in value.
Why the Rule of 72 is useful
- Quick mental estimate
- Easy way to understand compounding
- Helps compare different return rates
- Useful for long-term planning
Limitations of the Rule of 72
- Approximation, not exact
- Less accurate for very high or very low rates
- Assumes constant return over time
Rule of 72 vs other metrics
The Rule of 72 complements metrics like CAGR and annualized return. While CAGR gives you the exact annual growth rate, the Rule of 72 gives a fast estimate of how long it takes for your investment to double.
Use our Rule of 72 calculator
Typical use cases
- long-term investing
- retirement planning
- comparing interest rates
- understanding compounding effects
When should you use the Rule of 72?
- When you want a quick estimate
- When comparing investment opportunities
- When planning long-term growth
- When teaching or explaining compounding