Rule of 72
InvestingDefinition
The Rule of 72 is a mental math shortcut that tells you approximately how long it takes for an investment to double in value. Simply divide 72 by your annual rate of return. It's remarkably accurate for rates between 4% and 20%.
This rule works because of logarithmic math - the actual formula is ln(2)/ln(1+r), but 72 is a convenient approximation that's easy to do in your head. It also works in reverse: divide 72 by the number of years to find the required return rate.
The Rule of 72 is powerful for understanding the long-term impact of small differences in returns. The difference between 7% and 10% annual return doesn't sound like much, but over 30 years it's the difference between 7.6x and 17.4x your money. That's why expense ratios on index funds matter - even 1% extra fees per year means your money doubles one fewer time over your investing lifetime.
This rule works because of logarithmic math - the actual formula is ln(2)/ln(1+r), but 72 is a convenient approximation that's easy to do in your head. It also works in reverse: divide 72 by the number of years to find the required return rate.
The Rule of 72 is powerful for understanding the long-term impact of small differences in returns. The difference between 7% and 10% annual return doesn't sound like much, but over 30 years it's the difference between 7.6x and 17.4x your money. That's why expense ratios on index funds matter - even 1% extra fees per year means your money doubles one fewer time over your investing lifetime.
How it works
6%
12 years
8%
9 years
10%
7.2 years
12%
6 years
Formula
Years to double ≈ 72 / Annual return %
Example
At 8%: 72 / 8 = 9 years to double
At 10%: 72 / 10 = 7.2 years to double
At 12%: 72 / 12 = 6 years to double
Reverse: You want to double in 5 years → 72 / 5 = 14.4% annual return needed.
Credit cards: 24% APR → 72 / 24 = 3 years for your debt to double if you make no payments.
At 10%: 72 / 10 = 7.2 years to double
At 12%: 72 / 12 = 6 years to double
Reverse: You want to double in 5 years → 72 / 5 = 14.4% annual return needed.
Credit cards: 24% APR → 72 / 24 = 3 years for your debt to double if you make no payments.