The Rule of 72 is a rule of thumb that provides a quick and easy way to approximate the time it will take for an investment to double. One such concept is the Rule of 72, a simple yet powerful tool that can estimate how long it will take for an investment to double in value. The Rule of 72 is a powerful financial tool that provides a quick and easy way to estimate the doubling time of an investment.
The Rule of 72 is also helpful in evaluating the impact of compounding interest on debt. To see how simple and practice this formula is, let’s take a look at the different applications of the Rule of 72 in more detail. You can change your preferences or retract your consent at any time via the cookie policy page. Let Unbiased match you with the right SEC-regulated financial advisor for your needs. While the Rule of 72 is a good starting point, a financial advisor can provide personalized guidance for financial success. The Rule of 72 is also crucial for retirement planning.
The Rule of 72 is only an approximation and depending on what you’re trying to understand there are a few variations of the rule that can make this estimate more accurate. It’s not perfectly accurate, but will get you more of a ballpark figure that can help you make investing decisions. By contrast, bonds typically offer a fixed rate of return, making it easier to use the Rule of 72 effectively.
Understanding the Rule of 72: A Financial Hack to Calculate Doubling Time
Another limitation is that the Rule doesn’t take into account taxes, fees, or changing interest rates. That means that in just 24 years, your money will only buy half of what it can today, if it’s just sitting idle. Using the Rule of 72, you divide 72 by the inflation rate (3), which gives you 24. For maximum accuracy—particularly for continuous compounding interest rate instruments—use the Rule of 69.3. This has no relevance to the Rule of 72, where the number was probably chosen because it’s simpler to use than the more accurate 69.3.
- Inflation erodes the purchasing power of money over time, and the Rule of 72 estimates how quickly this happens.
- Be the first to rate this post.
- This formula is an easy and quick way to estimate investment gains.
- It’s most accurately used when considering investments with a steady and fixed rate of return, including bonds or certificates of deposit.
- Rule of 72 only works on compounded rate of return and it is most accurate in the rate of return range of 6% to 10%.
- In actuality, though, utilizing the latter dividend has proven to offer better projections for those who take advantage of continuous compounding.
Accuracy and Limitations
For instance, at an 8% annual interest rate, the rule estimates it will take 9 years to double your money. You divide 72 by the annual interest rate of your investment to estimate the years needed for it to double in value. Here, you would be able to know the rate of return at which you would be able to double your investment.
Any percentage between 4% and 15% should provide a decent approximation using the rule, but at very low (close to 1% or 2%) or very high (above 20%) interest rates, estimates may differ noticeably from a true calculation. With the rule providing a rough estimate rather than an exact answer, it is most accurate for an interest rate of 8% and its precision diminishes as the rate deviates significantly from this range. Assuming an average inflation rate of 3%, he can use the Rule of 72 to estimate how much his savings will be worth in today’s dollars when he retires. While her investment in the bond fund would take about 18 years to double, the more aggressive stock fund would see doubling in half that time. For example, those planning for retirement can utilize it to estimate how long their savings would need to grow at a specific rate to reach the desired retirement fund size. Let’s consider a specific example for calculation purposes, perhaps an investment that grew at an annual rate of 8%.
As with any financial concept, it’s essential to understand the limitations and misconceptions of the Rule of 72. This can help you ensure that you’re saving enough and give you a better idea of when you’ll be financially ready to retire. Planning for retirement is a major financial goal for many individuals.
- For rates outside of this range, the approximation may become less precise.
- On December 17, 2025, the SEC filed its response to the petition, agreeing with the Ninth Circuit’s decision but asking the Supreme Court to nevertheless take Mr. Sripetch’s case and resolve the circuit split.
- This may lead the SEC to lean toward filing cases in jurisdictions within the Ninth Circuit (such as the Northern and Central Districts of California) where the remedial rules are more lenient, rather than the Second Circuit (which includes the Southern District of New York, normally a hub for SEC enforcement).
- This flexibility makes it a powerful tool for personal finance and investment planning.
- Whether you’re a first-time investor or a seasoned pro, the simplicity and clarity it offers can be a valuable part of your financial toolkit.
Just over one month into the Trump Administration, the SEC dismissed with prejudice its enforcement action against Coinbase—filed during former Chair Gensler’s tenure—which had alleged that the digital currencies sold on Coinbase’s platform constituted unregistered securities. The SEC closed numerous matters in 2025, the common thread being greater alignment of the agency’s enforcement agenda with the broader policy priorities of the Trump Administration. As anticipated in last year’s Review, 2025 saw the SEC shift its focus toward “bread-and-butter” enforcement, resulting in the closure or dismissal of several high-profile lawsuits and investigations in novel areas, most notably in the cryptocurrency space. In addition, Apps acknowledged that the SEC has experienced “a slight cultural shift” away from pursuing high numbers of enforcement actions and toward focusing on “the right case for the right reasons.” Apps also opined that she believes that the Atkins SEC will be more receptive than past administrations to not pursuing actions if defendants self-report.
How We Make Money
This means it would take approximately 12 years for your investment to double its value. Have you ever wondered how long it would take for an investment to double its value? It shortens the time needed to double your money. He was able to get an investment option at 12% per annum.With the Rule of 72, it will take him 6 years to double his money (72 ÷ 6).At age 21, his money is N50,000At age 27, his money becomes N100,000At age 33, his money becomes N200,000At age 39, his money becomes N400,000At age 45, his money becomes N800,000Isn’t this interesting? “It really does make you realize that rate of return is important.”
What is the Rule of 72 in simple terms?
Let us see how many times his initial investment of $100,000 will double until he reaches that age. He intends to invest it in a product that is offering him a rate of return of 9%. Thus, the Rule of 72 is quite handy to figure out how much time it roughly takes to double your investment.
Evaluating fees and expenses
You don’t need a finance degree to figure out how long it’ll take to double your money as an investor. Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. It doesn’t accurately reflect what is multiple regression fluctuating markets or high-risk asset classes.
The Rule of 72 is a formula that estimates the amount of time it will take for an investment to double in value when earning a fixed annual rate of return. The Rule of 72 is a simple and effective formula that helps investors estimate how long it will take for their investment to double based on a fixed annual rate of return. The Rule of 72 is a widely used financial formula that helps estimate how long it will take for an investment to double in value based on a fixed annual rate of return. For investments with rates of return beyond that 5% to 10% range, there are other formulas that can more accurately estimate how long it will take to double the value.
Investors can utilize it to estimate the growth of stocks, bonds or savings accounts, allowing for better long-term financial planning. This rule is particularly useful for interest rates between 6% and 10%, offering a quick mental calculation for investors and financial planners alike. For example, if you’re looking at an investment with a 1% return, the Rule of 72 says it would take 72 years to double your money. It is a reasonably accurate estimate, especially at low interest rates. The Rule of 72 is an easy way to calculate how long an investment will take to double in value given a fixed annual rate of interest.
They can view your savings and investments from a step back and suggest courses of action fueled by reason and an eye for helping protect what you’ve built. Your personal finances mean a lot to you, but they can carry emotional aspects that are hard to separate out if you’re always working with your money up close. Building your wealth has as much to do with the money you put in to your planning as the money that goes out. Because they specialize in financial advice and planning, advisors can also help you determine when to make adjustments or how to adapt to changes in your cash flow or priorities, often with only a phone call. As someone who works hard for all you have, you deserve a financial strategy to optimize and help protect it. From investing and retirement planning to insurance and estate planning, they bring the knowledge and training to support your unique goals.
It calculates the doubling period more accurately for higher interest rates but requires more complex calculations compared to the rule of 72. When combined with other financial tools, the rule of 72 can effectively illustrate growth potential. Rule of 72 charts can help you visually compare various returns and their effect over time so one can plan better.
Because money that doubles on paper but collapses under stress was never truly compounding. That’s manufacturing cookie-cutter investors—as if people were spreadsheets with pulse rates. The Rule of 72 assumes a constant, uninterrupted rate of return. Therefore, while you can guess an average rate of return based on market performance or other benchmarks, there is no guarantee. In this example, your average rate of return was 7.2 percent. It’s important to note that this is not an exact science, and there are scenarios in which a different formula may transposition error provide a more accurate answer.
Or how compounding interest could impact your savings over time? The higher the returns, the higher the risks. With the Rule of 72, it will take 9 years to double her money (72÷ 8).At age 21, her money is N50,000At age 30, her money becomes N100,000At age 39, her money becomes N200,000At age 48, her money becomes N400,000Fair right? Ever wondered how long it will take to double your money? “Getting started early is on your side because that’s where the power of compounding kicks in and you really can’t ever make up for that time.”
All you have to do is divide 72 by the interest rate. Bankrate.com is an independent, advertising-supported publisher and comparison service. You can also use the Rule of 72 to understand inflation’s impact.
What is the Rule of 72 in Finance?
The Rule of 72 is an important tool to understand how compounding works and plan your financial future. For rates outside this range, slight adjustments can improve its precision. However investors can calculate the number of years required for the FDs to get doubled through the rule of 72 chart. Understanding how inflation relates to the rule of 72 can help you make smarter financial decisions. If the inflation rate is 4%, then 72 divided by 4 equals 18 years. Nonetheless stable investment options like fixed deposits remain effective planning instruments.