Glossary
Rule of 72
The Rule of 72 is a mental shortcut that estimates how long money takes to double: divide 72 by the annual growth rate to get the approximate number of years.
At 8% growth, 72 ÷ 8 ≈ 9 years to double; at 3% inflation, prices double in roughly 24 years. It is an approximation — reasonably accurate for rates in the mid single digits, less precise at the extremes — not an exact formula, and it assumes a steady rate that real markets never deliver.
Why it matters in practice
Its value is intuition. It makes compounding concrete (money at 7% doubles about every decade, so a 25-year-old's dollar can double four times by 65), it works in reverse for inflation eating purchasing power, and it prices fees: a portfolio growing at 7% doubles in ~10 years, but at 5.5% after a 1.5% fee it takes ~13 — the fee's cost expressed in years.
Related terms: Compound Interest · Inflation · Real Return · Expense Ratio