Rule of 72

The rule of 72 says: divide 72 by the annual return as a percentage to get the approximate doubling time in years. At 7.2% per year, money doubles in about ten years. At 10%, it doubles in about 7.2 years.

It is not exact, but it is close enough for mental maths. The rule works best for returns between about 5% and 15%. At very low or very high rates it drifts away from the true compound calculation.

It also applies in reverse. Divide 72 by the inflation rate to estimate how long it takes purchasing power to halve. At 6% inflation, a lump sum buys half as much in roughly twelve years.

The rule of 72 is a useful check when you see a compound interest projection. If a headline promises to double your money in a short time, the implied return should be easy to test with this rule.