a rule of thumb method used to determine how many years it takes to double investment money at a given growth or interest rate. Under the method, dividing the number 72 by the fixed rate of return equals the number of years it takes for annual earnings from the investment to double. That is, 72/r (in percent). For example, if you bought a share of ADR yielding an annual return of 25%, the investment will double in less than three years: 72/25 = 2.88 years. The rule can be reversed, too. For example, if you know that your money doubled in four years, you can divide 72 by 4. You will see that you earned roughly 18% per year.
Note: The Rule of 72 does not work, however, when dealing with extreme numbers. For example, dividing 72 by a 72% return indicates that you expect to double your money in one year. It is not true. It would rather take a 100% return. Furthermore, it is more accurate when dealing with somewhat higher returns to use 76, not 72.
method commonly used to approximate the time required for a sum of money to double at a given rate of interest. The rule of 72 is computed by dividing 72 by the interest rate. For example, a savings account earning 10% will double in less than 7 1/2 years (72 ÷ 10 = 7.2 years).
formula for approximating the time it will take for a given amount of money to double at a given compound interest rate. The formula is simply 72 divided by the interest rate. In six years $100 will double at a compound annual rate of 12%, thus: 72 divided by 12 equals 6.
