Quick Math - The Rule of 72

Have you ever wondered how long it would take for you to double your money? The rule of 72 is a neat math trick to calculate this. This simple formula requires only one input, your expected rate of return.

Just divide it by 72 and bam! You got it.

# of Years to Double = 72/Annual Rate of Return

Putting the Rule in Action - Danny's Double

Danny has $5,000 to invest, with the goal of one day growing it to $10,000. He's planning on investing into a portfolio of low-cost stock ETFs.

Stocks typically averages an annual return of 7%, assuming he'll experience the same, how long would it take for his money to double?

Using the rule of 72, we find that it'll take about:

72/7 = 10.29 Years

So easy!

Flipping it Around

10 years is a long time, Danny was hoping to double his money in 5 years.

Luckily, we can flip the rule around to find the return he'd need to achieve this.

Annual Rate of Return = 72/# of Years to Double

Plugging in the numbers, we find Danny will need a return of:

72/5 = 14.4%

That's a pretty high return, even for stocks. Not impossible but definitely not something to count on. Danny's best bet would be to save more instead of hoping for higher than average returns.

Conclusion

The rule of 72 is a great tool, but it's not perfect, it's simply a rule of thumb. So for serious financial planning, you'll want the most accurate numbers. Though not fully accurate, it does get pretty darn close, especially when it comes to lower rates.

Rate of Return	Rule of 72 (Years)	Exact Number (Years)	Accuracy Rate
1%	72	69.66	96.75%
2%	36	35	97.22%
5%	14.4	14.21	98.68%
10%	7.2	7.27	99.04%
20%	3.6	3.8	94.74%
50%	1.44	1.71	84.21%
100%	0.72	1	72.00%

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