What's the Rule of 72 in Finance? Formula for Rule of 72

Abstract

Formula for the Rule of 72 The formula for the Rule of 72 is pretty simple: Years to double = 72 / rate of return on investment As another example, if you expect to earn 8% on an investment each year, then it would take 9 years for your initial investment to double: 9 = 72 / 8. Uses of the Rule of 72 in Investing As noted above, you can use the Rule of 72 to figure out how long it will take an investment to double. Say you want your investment to double in just five years - by the Rule of 72, you'd need to earn a 14.4% return on your investment. Ditch Your Day Job: How to Retire Early with Rental Income Limitations of the Rule of 72 The Rule of 72 is a shorthand quick calculation, not the exact formula. Investors sometimes refer to this as the Rule of 69.3 or Rule of 69 if you want to round down for a more simple calculation. Here's a further chart showing how variations stack up to the Rule of 72 and the real numbers: Lastly, remember that the real period of time to double your current balance with daily compounding or continuous compounding strays further from the Rule of 72 results, which was designed to estimate annual compounding. The variation in returns from year to year is enough to throw off the calculation more than the Rule of 72's discrepancies.