Rule of 72

The Rule of 72 is a quick mental math shortcut to estimate how many years it takes for an investment to double at a given annual rate of return.

Formula: Years to Double = 72 / Annual Return Rate

Examples:

• At 6% return: 72 ÷ 6 = 12 years to double
• At 8% return: 72 ÷ 8 = 9 years to double
• At 10% return: 72 ÷ 10 = 7.2 years to double
• At 12% return: 72 ÷ 12 = 6 years to double

Reverse Application: If you want your money to double in 10 years, you need: 72 ÷ 10 = 7.2% annual return

Why It Works: The rule is a simplified approximation of the compound interest formula. It's most accurate for rates between 6-10% and becomes less accurate at extreme rates.

Practical Uses:

• Quick investment comparisons
• Setting realistic expectations
• Understanding inflation's impact (at 3% inflation, purchasing power halves in 24 years)