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Rule of 72

Understand the Rule of 72 Concept

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Rule of 72

In This Article
  • What is the Rule of 72?
  • How does the Rule of 72 work?
  • Is the Rule of 72 accurate or an estimation?
  • What is the Rule of 115?

Rule of 72 Formula

The Rule of 72 is a convenient approach to approximate how long it will take for invested capital to double in value.

In order to figure out the number of years it would take to double an investment, 72 is divided by the investment’s annual return.

The calculation is more-so a rough estimate – i.e. “back of the envelope” math – that provides a relatively accurate figure.

For a more precise figure, using Excel (or a financial calculator) is recommended.

Rule of 72 Formula

The formula for the Rule of 72 divides the number 72 by the annualized rate of return (i.e. the interest rate).

Number of Years to Double = 72 / Interest Rate

Rule of 72 Table

The chart below provides the approximate number of years for an investment to double, given a rate of return ranging from 1% to 10%.

Rule of 72

Rule of 72 – Compound Interest or Simple Interest?

The Rule of 72 applies to cases of compound interest, but not to simple interest.

  • Simple Interest – The accumulated interest to date is NOT added back to the original principal amount.
  • Compound Interest – The interest is calculated based on the original principal, as well as the accumulated interest incurred from prior periods (i.e. “interest on interest”).

Rule of 72 Calculation Example

Let’s say, for example, an investment is earning 6% each year.

If we divide 72 by 6, we can calculate the number of years it would take for the investment to double.

  • Years to Double = 72 / 6
  • Years to Double = 12 Years

In our illustrative scenario, the investment needs around 12 years before doubling in value.

Rule of 115

There is also a related but lesser-known rule, called the “Rule of 115”.

By dividing 115 by the rate of return, the estimated time for an investment to triple (3x) can be calculated.

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