Investor Corner/Start here/Foundations
1.1.7 Rule of 72
Divide 72 by an expected annual return, and the result is roughly how many years it takes for money to double. It is a mental shortcut, not a formula, and it is remarkably accurate for the returns most portfolios actually target.
The shortcut
The Rule of 72 is a quick way to estimate doubling time without a calculator. At 12% a year, money doubles in about 72 ÷ 12 = 6 years. At 8%, it takes about 9 years. At 6%, about 12 years. The relationship is not exact, it comes from the mathematics of compounding, but it stays close enough to the true figure across the return ranges most investors actually deal with.
The rule works because the natural logarithm of 2 is about 0.693, and for rates between roughly 4% and 15% the approximation 72 divided by the rate lands close to the exact figure. The number 72 is used instead of 69.3 because it divides cleanly by 2, 3, 4, 6, 8, 9 and 12, which makes the mental arithmetic easy.
Why it's worth knowing by heart
The rule turns an abstract percentage into something tangible: not "12% a year" but "my money doubles roughly every six years." That framing makes it much easier to judge whether a goal is realistic. A 15-year runway at 12% isn't just "a long time", it's enough for money to double roughly two and a half times over.
It also works in reverse, which makes it a quick fraud detector. If someone promises to double your money in three years, the implied return is 72 divided by 3, or 24% a year, well above what any diversified portfolio delivers on a sustained basis. Applied to inflation, 6% means the cost of living doubles in about twelve years, so a ₹50,000 monthly expense today becomes close to ₹2.9 lakh over a thirty-year retirement. It is equally useful on fees: a 2% expense difference takes about 36 years to halve your corpus relative to a cheaper fund.
Where the approximation breaks down
The rule is reasonably accurate between about 4% and 15%. Outside that range, or for very short periods, the estimate drifts further from the true figure, and an actual compound-interest calculation is worth doing instead. It's a tool for quick intuition, not for the final number in a financial plan.
At the extremes the error grows. At 36%, the rule says two years to double while the true figure is about 2.25; at 1%, it says 72 years against a true 69.7. For rates above 20%, the Rule of 69.3 or 70 is more accurate, though less convenient. Within the investment-grade range most people deal with, 72 remains the best balance of accuracy and ease.
How PriLytics helps. Once your money is actually invested, the Rule of 72 becomes a rough guide rather than the real number. PriLytics tracks your own XIRR against your own timeline, so you always know exactly how your portfolio is compounding. See your own numbers.