The rule of 72 is a process for quickly projecting how long it will take for a rate of investment return to make capital double. The number 72 is used in figuring out the answer by dividing the rate of return percentage per period to get an approximation of the number of years in most cases that it will take to double. The rule of 72 is used as a quick mental short cut so spreadsheets or scientific calculators are not needed.
The rule of 72 uses the rate of compounded exponential growth not simple interest year by year, gains are not removed but left in the calculation. The gains are compounded year over year in this system allowing new gains to make more money.
The Rule Of 72 Formula:
Investment rate of return X number of years invested = 72
Number of years invested = 72 / annual investment rate
Investment rate = 72 / number of years invested
The rule of 72 annual rate of return percentage and years to double. (Exact years to double). The formula.
2% annual return takes 36 years to double (35) 2 = 72/36
3% annual return takes 24 years to double (23.45) 3 = 72/24
5% annual return takes 14.4 years to double (14.21) 5 = 72/14.4
7% annual return takes 10.3 years to double (10.24) 7 = 72/10.3
9% annual return takes 8 years to double (8.04) 9 = 72/8
12% annual return takes 6 years to double (6.12) 12 = 72/6
25% annual return takes 2.9 years to double (3.11) 25 = 72/2.9
50% annual return takes 1.4 years to double (1.71) 50 = 72/1.4