What Is the Rule of 72? (2024)

The Rule of 72 is an easy way for an investor or advisor to approximate how long it will take an investment to double based on its fixed annual rate of return. Simply divide 72 by the fixed rate of return, and you’ll get a rough estimate of how long it will take for your portfolio to double in size.

The science isn’t exact, though, and you may want to use a different formula to account for rates of return that fall outside a certain range.

Key Takeaways

  • The Rule of 72 is a simple way to calculate how long it will take an investment to double based on the annualized rate of return.
  • Investors can use the rule when planning for retirement, education expenses, or any other long-term financial goal.
  • For more accuracy, investors can use a logarithmic formula to calculate the time for an investment to double.
  • In some situations, investors might want to use the Rule of 70 instead.

What Is the Rule of 72?

The Rule of 72 is a rule of thumb that investors can use to estimate how long it will take an investment to double, assuming a fixed annual rate of return and no additional contributions.

If you want to dive even deeper, you can use the Rule of 115 to determine how long it will take to triple your investment.

Both of these rules of thumb can help investors understand the power of compound interest. The higher the rate of return, the shorter the amount of time it will take to double or triple an investment.

How To Use the Rule of 72 To Estimate Returns

Let’s say you have an investment balance of $100,000, and you want to know how long it will take to get it to $200,000 without adding any more funds. With an estimated annual return of 7%, you’d divide 72 by 7 to see that your investment will double every 10.29 years.

Here’s an example of other rates of return and how the Rule of 72 affects your investment:

Rate of ReturnYears it Takes to Double
1%72
2%36
3%24
4%18
5%14.4
6%12
7%10.3
8%9
9%8
10%7.2
11%6.5
12%6

However, the calculation isn’t foolproof. If you have a little more time and want a more accurate result, you can use the following logarithmic formula:

T = ln(2) / ln(1+r)

In this equation, “T” is the time for the investment to double, “ln” is the natural log function, and “r” is the compounded interest rate.

So, to use this formula for the $100,000 investment mentioned above, with a 6% rate of return, you can determine that your money will double in 11.9 years, which is close to the 12 years you'd get if you simply divided 72 by 6.

Here's how the logarithmic formula looks in this case:

T = ln(2) / ln(1+.06)

Note

If you don’t have a scientific calculator on hand, you can usually use the one on your smartphone for advanced functions. However, the basic calculation can give you a good ballpark figure if that’s all you need.

How To Use the Rule of 72 To Estimate Compound Interest

Like most equations, you can move variables around to solve for others that aren’t certain. If you’re looking back on an investment you’ve held for several years and want to know what the annual compound interest return has been; you can divide 72 by the number of years it took for your investment to double.

For example, if you started out with $100,000 and eight years later the balance is $200,000, divide 72 by 8 to get a 9% annual rate of return.

Grain of Salt

The Rule of 72 is easy to calculate, but it’s not always the right approach. For starters, it requires a fixed rate of return, and while investors can use the average stock market return or other benchmarks, past performance doesn’t guarantee future results. So it’s important to do your research on expected rates of return and be conservative with your estimates.

Also, the simpler formula works best for return rates between 6% and 10%. The Rule of 72 isn’t as accurate with rates on either side of that range.

For example, with a 9% rate of return, the simple calculation returns a time to double of eight years. If you use the logarithmic formula, the answer is 8.04 years—a negligible difference.

In contrast, if you have a 2% rate of return, your Rule of 72 calculation returns a time to double of 36 years. But if you run the numbers using the logarithmic formula, you get 35 years—a difference of an entire year.

As a result, if you’re looking to just get a quick idea of how long your investment will take to double, use the basic formula. But if you’re calculating the figure as part of your retirement or education savings plan, consider using the logarithmic equation to ensure that your assumptions are as accurate as possible.

Note

The Rule of 72 works best over long periods of time. If you’re nearing retirement, it may not be as helpful because short-term volatility can give your annual return rate less time to even out.

Rule of 72 vs. 70

The Rule of 72 provides reasonably accurate estimates if your expected rate of return is between 6% and 10%. But if you’re looking at lower rates, you may consider using the Rule of 70 instead.

For example, take our previous example of a 2% return. With the simple Rule of 70 calculation, the time to double the investment is 35 years—exactly the same as the result from the logarithmic equation.

However, if you try to use it on a 10% return, the simple formula gives you seven years while the logarithmic function returns roughly 7.3 years, which has a wider discrepancy.

As with any rule of thumb, the Rules of 72 and 70 aren’t perfect. But they can give you valuable information to help you with your long-term savings plan. Throughout this process, consider working with a financial advisor who can help you tailor an investment strategy to your situation.

Frequently Asked Questions (FAQs)

What is the Rule of 72 used for?

The Rule of 72 is a quick formula you can use to estimate the future growth of an investment. If you know the average rate of return, you can apply a simple formula to determine how long it will take to double your investment, assuming you don't put more money into it.

Who invented the Rule of 72?

The earliest known reference to the Rule of 72 comes from Luca Pacioli's 1494 book, "Summa de Arithmetica." This book went on to be used as an accounting textbook until the mid-1600s, granting Pacioli the title of the Father of Accounting.

When does money double every seven years?

To use the Rule of 72 to figure out when your money will double itself, all you need to know is the annual rate of expected return. If this is 10%, then you'll divide 72 by 10 (the expected rate of return) to get 7.2 years. Use this same formula to figure out the return on other investments by diving 72 with the expected annual rate of return.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

What Is the Rule of 72? (2024)

FAQs

What is the rule of 72 in simple terms? ›

Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

Does the rule of 72 really work? ›

The Rule of 72 works best in the range of 5 to 10 percent, but it's still an approximation.

What is the rule of 72 and 69 in finance? ›

Rules of 72, 69.3, and 69

The Rule of 72 states that by dividing 72 by the annual interest rate, you can estimate the number of years required for an investment to double. The Rule of 69.3 is a more accurate formula for higher interest rates and is calculated by dividing 69.3 by the interest rate.

Where is the rule of 72 most accurate? ›

The rule of 72 is only an approximation that is accurate for a range of interest rate (from 6% to 10%). Outside that range the error will vary from 2.4% to 14.0%. It turns out that for every three percentage points away from 8% the value 72 could be adjusted by 1.

How to double $2000 dollars in 24 hours? ›

The Best Ways To Double Money In 24 Hours
  1. Flip Stuff For Profit. ...
  2. Start A Retail Arbitrage Business. ...
  3. Invest In Real Estate. ...
  4. Play Games For Money. ...
  5. Invest In Dividend Stocks & ETFs. ...
  6. Use Crypto Interest Accounts. ...
  7. Start A Side Hustle. ...
  8. Invest In Your 401(k)
3 days ago

What is the 8 4 3 rule in mutual fund? ›

What kind of returns can I expect with the 8-4-3 rule? Assuming a 12% annual return, your investment may double every 8, 4, and 3 years, leading to substantial growth over 15 years.

What is the Warren Buffett Rule? ›

The Buffett Rule is the basic principle that no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay.

How long will it take to increase a $2200 investment to $10,000 if the interest rate is 6.5 percent? ›

Final answer:

It will take approximately 15.27 years to increase the $2,200 investment to $10,000 at an annual interest rate of 6.5%.

How can I double my money in 3 years? ›

The classic approach of doubling your money involves investing in a diversified portfolio of stocks and bonds and is probably the one that applies to most investors. Investing to double your money can be done safely over several years but there's more of a risk of losing most or all of your money if you're impatient.

How can I double $5000 dollars? ›

To turn $5,000 into more money, explore various investment avenues like the stock market, real estate or a high-yield savings account for lower-risk growth. Investing in a small business or startup could also provide significant returns if the business is successful.

How to double 10k quickly? ›

  1. Flip Stuff For Money. One of the more entreprenurial ways to flip 10k into 20k is to buy and resell stuff for profit. ...
  2. Invest In Real Estate. ...
  3. Start An Online Business. ...
  4. Start A Side Hustle. ...
  5. Invest In Stocks & ETFs. ...
  6. Fixed-Income Investing. ...
  7. Alternative Assets. ...
  8. Invest In Debt.
Jun 27, 2024

What is the 10/20 rule? ›

The 20/10 rule follows the logic that no more than 20% of your annual net income should be spent on consumer debt and no more than 10% of your monthly net income should be used to pay debt repayments.

How long will it take $1000 to double at 6% interest? ›

So, if the interest rate is 6%, you would divide 72 by 6 to get 12. This means that the investment will take about 12 years to double with a 6% fixed annual interest rate. This calculator flips the 72 rule and shows what interest rate you would need to double your investment in a set number of years.

Does Rule of 72 apply to 401k? ›

Rule 72(t) allows for penalty-free withdrawals from Individual Retirement Accounts (IRAs) and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. It is issued by the Internal Revenue Service (IRS).

What 2 things does the Rule of 72 solve for you? ›

There are two things the Rule of 72 can tell you reasonably accurately: how many years it will take to double your money and what kind of return you will need to double your money in a fixed period of time.

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