The Rule of 72

The rule of 72 is a method for estimating an investment’s doubling time. Basically, to estimate how long it will take to double an investment, divide the most convenient rule-quantity by the expected growth rate. For instance, if you were to invest 100 dollars with a compounding interest rate of 9% a year, the rule of 72 gives 72/9 = 8 years to double to 200 dollars. It’s a great tool to use because 72 has a lot of small divisors. But it’s only a good approximation for annual compounding at rates between about 6 and 10 %. The approximations are less accurate at higher interest rates. Other rules are the rule of 70, 69.3 and the E-M Rule estimate. When you are saving or investing for specific purposes, this is a good rule to know how much money you need to start with to reach a goal. Or it is a good tool to use to know what interest rate you should shoot for to reach a goal.