The Rule of 72 – When Growth and Time Yield Double

Presented by Mark Phillips

You might wonder how I can so quickly tell you how long it will take for an investment to double your money at a fixed rate of return – all in my head.

Well, the rule of 72 can help you figure this out just as quickly. The rule gives you an approximation of how long it will take any investment at a specific rate of interest and/or growth—whether it’s a simple savings account or a complex investment portfolio—to double.

Simply divide 72 by the annual interest/growth percentage you expect to earn on the investment. The result is the number of years it will take to double your money.

Let’s say we have a hypothetical investment that currently returns 7.20 percent annual compound interest:

72 divided by 7.20 = 10 years to double

And we have a second hypothetical investment that returns 8.6 percent annual compound interest:

72 divided by 8.6 = about 8.4 years to double

You can see how the slightest difference in interest rates can have a pronounced effect on how quickly your money might grow.

Another way to use this is to see the effect of apparent (nominal) growth and real (inflation adjusted) growth. Consider the first case above with annual average growth of 7.2% per year.

72 divided by 7.20 = about 10 years to double

In a 4% inflation environment the real (inflation adjusted) growth rate is really 3.07% per year and the following would express the time for the hypothetical investment to double in purchasing power:

72 divided by 3.07 = ~ 23½ years to double 

Now then, using the second example above with nominal growth of 8.6% per year we see a real return rate of 4.42%. Thus the time to double purchasing power is determined as follows:

72 divided by 4.42 = ~16.3 years

This is 30% faster and is much faster than the rate at which the nominal amount of money will double.

Of course, interest rates can and do fluctuate, and taxes can take a chunk, too—so that’s why I stress this is only a rough approximation. Also, note that the hypothetical illustrations are not predictions of investment performance; investment principal and interest are not guaranteed and are subject to market fluctuation in virtually all investments.