What is the "Rule of 72"?


Quick Answer

The "rule of 72" is used to determine how long it might take for an investment to double in size. This is done by dividing 72 by the annual rate of return to give investors a rough estimate of how many years it should take for the investment to duplicate.

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What is the "Rule of 72"?
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Full Answer

The rule of 72 does not result in a precise calculation. The level of inaccuracy increases as the rate of return increases. Therefore, the future value of money formula should be used for investments with high rates of return. The formula considers the dollar value of the initial investment, the length of time an asset is invested and the impact of compounding interest.

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