The 'Rule of 72' is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest. By dividing 72 by the annual rate of return, investors can get a rough estimate of how many years it will take for the initial investment to duplicate itself.
For example, the rule of 72 states that $1 invested at 10% would take 7.2 years ((72/10) = 7.2) to turn into $2. In reality, a 10% investment will take 7.3 years to double ((1.10^7.3 = 2).
When dealing with low rates of return, the Rule of 72 is fairly accurate. This chart compares the numbers given by the rule of 72 and the actual number of years it takes an investment to double.
Rate of Return  Rule of 72  Actual # of Years  Difference (#) of Years 
2%  36.0  35  1.0 
3%  24.0  23.45  0.6 
5%  14.4  14.21  0.2 
7%  10.3  10.24  0.0 
9%  8.0  8.04  0.0 
12%  6.0  6.12  0.1 
25%  2.9  3.11  0.2 
50%  1.4  1.71  0.3 
72%  1.0  1.28  0.3 
100%  0.7  1  0.3 
Notice that, although it gives a quick rough estimate, the rule of 72 gets less precise as rates of return become higher. Therefore, when dealing with higher rates, it's best to calculate the precise number of years algebraically by means of the future value formula.
(To learn more, see Understanding the Time Value of Money.)

How do I use the rule of 72 to estimate compounding periods?
The rule of 72 is best used to estimate compounding periods that are factors of two (2, 4, 12, 200 and so on). This is because ... Read Full Answer >> 
How do I calculate the rule of 72 using Matlab?
In finance, the rule of 72 is a useful shortcut to assess how long it takes an investment to double given its annual growth ... Read Full Answer >> 
How do I use the rule of 72 to calculate continuous compounding?
The rule of 72 is a mathematical shortcut used to predict when a population, investment or other growing category will double ... Read Full Answer >> 
How do I adjust the rule of 72 for higher accuracy?
The rule of 72 refers to a time value of money formula that investors use to calculate how quickly an investment will double ... Read Full Answer >> 
What is finance?
"Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >> 
What is a stock split? Why do stocks split?
All publiclytraded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>

Fundamental Analysis
Will Health Care Continue to Drive IPOs in 2016?
Learn why health care IPOs may be slowing in 2016, and how Obamacare, poor previous filings and economic factors are affecting the health care sector. 
Active Trading Fundamentals
4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)
Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered. 
Investing Basics
How liquid are Fidelity mutual funds?
Review the liquidity features of mutual fund shares and an overview of Fidelity mutual funds. Most investors look for convenient access to their investments. 
Sectors
3 Cyclical Industries To Exploit in 2016
Learn about the three industries at the down end of their business cycles, and discover how these industries may improve in years to come. 
Stock Analysis
If You Had Invested Right After Berkshire Hathaway's IPO (BRK.A)
Learn how much you would now have if you had invested right after Berkshire Hathaway's IPO, and find out the classes of shares that you could invest in. 
Stock Analysis
Is Now the Right Time to Buy Coty? (COTY)
Find out whether fragrance and color cosmetics powerhouse Coty deserves a place in your portfolio. Will recent acquisitions help turn the company around? 
Investing Basics
5 Common Mistakes Young Investors Make
Missteps are common whenever you’re learning something new. But in investing, missteps can have serious financial consequences. 
Investing Basics
5 Questions First Time Investors Should Ask in 2016
Learn five of the most important questions you need to ask if you are a new investor planning on starting an investment program in 2016. 
Stock Analysis
The Biggest Risks of Investing in Verizon Stock (VZ)
Read about some of the biggest risks of investing in Verizon stock. While the company has a good dividend and value pricing, there are risks. 
Mutual Funds & ETFs
The 3 Best American Funds for Value Investors in 2016
Learn about value investing and how interest rate hikes benefit mutual funds, and the top three American Funds mutual funds for value investors.

Markdown
The difference between the highest current bid price among dealers ... 
Catalyst
A catalyst in equity markets is a revelation or event that propels ... 
Investing
The act of committing money or capital to an endeavor with the ... 
Bid Wanted
An announcement by an investor who holds a security that he or ... 
Hindsight Bias
A psychological phenomenon in which past events seem to be more ... 
Paper Trade
Using simulated trading to practice buying and selling securities ...