Compounded interest and exponential growth seem like abstract concepts to many people, but the classic rule of thumb — the “Rule of 72" — allows you to quickly estimate the number of years it will take to double an investment at a given rate of return.
The Rule of 72 simply states: Take the number 72 and divide it by the rate of return of an investment. The result is the number of years it takes for that money to double.
Mathematically:
For example if an investment has grown at a 6% average annual rate, it would have doubled in value in about 12 years (72 / 6 = 12). At an 8% rate, it would have doubled in 9 years. And in another 9 years, that doubled investment would have doubled again, or quadrupled. The table below offers a more complete listing of rates of returns and Rule of 72 estimations.
It is important to keep in mind that most investments, including mutual funds, do not grow at a steady rate and the Rule of 72 should only be used as a guide in setting long-term investment goals.