The Rule of 72 Explained
A quick mental shortcut to estimate how long it takes money to double. Here’s how the Rule of 72 works.
On this page
The Rule of 72 is a simple mental shortcut to estimate how long it takes an investment to double at a given annual rate of return — a handy way to grasp the power of compounding without a calculator.
The formula
Years to double ≈ 72 ÷ annual return (%)
- At 8%, money doubles in ~72 ÷ 8 = 9 years.
- At 12%, in ~72 ÷ 12 = 6 years.
- At 6%, in ~72 ÷ 6 = 12 years.
It works in reverse too: to double in 5 years, you’d need ~72 ÷ 5 ≈ 14.4% a year. (For an exact figure, use our money-doubling calculator.)
Why it’s useful
- Instant intuition — quickly see how return rates translate into real growth.
- Shows the cost of low returns — money at 4% takes ~18 years to double, vs ~6 years at 12%. Small differences in return have huge long-term effects.
- Illustrates inflation’s bite — at 6% inflation, prices double (your money’s purchasing power halves) in ~12 years — a vivid reminder to beat inflation.
The caveats
- It’s an approximation — most accurate for returns around 6–10%; for very high or low rates it drifts a little.
- Assumes a constant return — real market returns vary year to year (CAGR smooths this).
- Ignores taxes and costs, which lengthen the real doubling time.
The takeaway
The Rule of 72 is a quick, powerful way to understand compounding and why both higher returns and more time matter so much — and why starting early (more doublings) is the investor’s biggest advantage. Education only, not a recommendation.
