Money guide · Investing basics, fees, and risk
Rule of 72: estimate doubling time and inflation loss
Use the Rule of 72 for a rough doubling-time estimate and understand its limits for variable returns, taxes, and inflation.
How it works
Use the rate as a percentage number, such as 6 rather than 0.06. Exact doubling time for a positive constant annual rate is ln(2) / ln(1 + rate). The shortcut is approximate and can be less accurate at unusual rates. Deposits, withdrawals, fees, taxes, and variable market returns require a fuller calculation.
A worked example
At a hypothetical constant 6% annual rate, 72 / 6 suggests 12 years. The exact annual-compounding calculation gives about 11.90 years. At 3% constant inflation, the shortcut suggests prices double in 24 years; the exact result is about 23.45 years. Cash with no interest then buys roughly half as much when the price level doubles.
What to compare
State whether the rate represents nominal growth, after-cost growth, or inflation. For purchasing-power doubling, first estimate a comparable real rate. If nominal growth is 6% and inflation is 3%, exact real growth is about 2.91%, which implies a much longer real doubling time than the nominal calculation. Keep the underlying assumptions visible.
A common mistake to avoid
Do not divide 72 by a historical average and promise that an investment will double on schedule. Volatility changes compounded outcomes, and a negative or zero rate does not fit the simple doubling shortcut. Use the formula as a quick reasonableness check, then model actual cash flows for decisions involving a specific savings goal.
Does the Rule of 72 predict stock-market returns?
No. It estimates time given an assumed steady rate. The assumption supplies the rate; the shortcut does not predict it.
Sources and further reading
Connect this to inflation
Inflation changes the spending power of money over time. Read the related inflation explainer, or explore historical market returns using your own assumptions.