Rule of 72

Rule of 72 estimates doubling time by dividing 72 by interest rate

The rule of 72 is a quick mental calculation method for estimating the time it takes for an investment to double at a given interest rate. It simplifies complex exponential growth calculations into a simple division operation. This rule is particularly useful for investors and financial planners who need to make quick decisions without access to advanced calculators or software.

Example

If you have an investment with an annual interest rate of 6%, the rule of 72 estimates that it will take approximately 12 years to double (72 ÷ 6 = 12).

Remember this

Understanding the rule of 72 helps investors quickly estimate investment growth, aiding in financial planning and decision-making.

Text adapted from Wikipedia, licensed under CC BY-SA 4.0.

Related concepts

Rate of return

Ever wondered how fast your money grows with interest?

Interest

Compound interest formula: A = P(1 + r/n)^(nt)

Dividend discount model

D₁/(r - g) = stock price

4% rule

Withdraw 4% annually to last 30 years

Taylor rule

How do central banks keep our economy stable?

Deflated Sharpe ratio

DSR penalizes upside volatility as much as downside

Educational content, not financial advice.

Swipe through more Finance concepts

Open Pocket Polymath