The rule of 72

The rule of 72 is a quick and simple way to understand how long it will take to double money through compounding.

You simply divide the number 72 by the yearly interest rate on your investment or savings. The number you get is the number of years it will take for your money to double. Whilst the rule isn’t always accurate, for the most part it works well as long as the interest rate is lower than 20%. Also if your return is not guaranteed, the doubling time will likely change if the return changes.

As an example, see the table below. If your expected annual return is 6%, using the rule of 72 your money will double in 12 years if you let the return compound.

Years	3% return	6% return	12% return
0	$10,000	$10,000	$10,000
6			$20,000
12		$20,000	$40,000
18			$80,000
24	$20,000	$40,000	$160,000
30			$320,000

How to use the rule of 72 for your own planning

You can use the rule of 72 to understand how long it will take to get to a target amount. This might be for retirement, a deposit on a house, college/university fees. If you have the rate of return and your starting investment, the rule of 72 can give you an idea of how it will take to hit that target.

As an example, you want to invest $100,000 for your retirement which is in 22 years. If the rate of return is 10%, using the rule of 72 your money will double every 7.2 years. So in the 22 years before you retire, you could expect your money to double 3 times. So your initial investment could grow to $800,000.

You could also use the rule to decide on risk versus reward. As an example, comparing a low-risk investment (3%, doubles every 24 years) to a high-risk investment (10%, doubles every 7 years).

Most young adults will choose high-risk investments. This is to take advantage of high rate returns over multiple doubling periods. Those approaching retirement will likely choose low-risk investments. This is because a secure investment is more important than doubling.