Rule of 72.
In plain English
The Rule of 72 estimates a doubling time by dividing 72 by the annual rate of return written as a whole percent. It works because of how compounding stacks, and it is accurate enough for mental math at rates between about 5 and 12 percent. The same shortcut runs in reverse on debt: a balance at 24 percent doubles in about three years if nothing is paid. It is an approximation, not a formula for planning, and it says nothing about whether a given rate is achievable.
01Why it matters
Doubling time turns an abstract percentage into something a person can picture, which is what makes the difference between a 4 percent and an 8 percent rate obvious over a working life.
02The math, step by step
At 8 percent, 72 / 8 = 9 years to double. So 5,000 dollars becomes about 10,000 dollars in 9 years, about 20,000 dollars in 18, and about 40,000 dollars in 27. At 4 percent it doubles once every 18 years, reaching only about 20,000 dollars over the same 36 years.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
It is not exact. The precise answer comes from the compound growth formula, and the rule drifts at very high or very low rates. At 2 percent the rule says 36 years while the true figure is about 35; at 30 percent the gap widens further.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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