The Rule of 72: A Simple yet Powerful Financial Tool to Estimate Investment Growth
Want to know how long it’ll take to double your investment—without pulling out a financial calculator? The Rule of 72 is one of the simplest tools in the finance world, and it’s surprisingly powerful. It gives you a quick way to estimate the effect of compound interest over time.
Whether you’re growing your KiwiSaver, investing in shares, or buying property, understanding how long your money might take to double is a useful part of long-term planning.
What Is the Rule of 72?
The Rule of 72 is a formula used to estimate the number of years it takes for an investment to double, based on a fixed annual rate of return. The formula is:
Years to Double = 72 ÷ Annual Rate of Return
For example, if your investment earns a 6% return annually, you can expect it to double in value in about 12 years:
72 ÷ 6 = 12 years
This rule is based on compound interest—that is, the idea that you’re earning interest on your interest as your money grows over time.
Real-World Examples
Let’s say you have $10,000 invested at a 10% annual return (after tax).
If you withdraw the interest each year, it’ll take 10 years to double your money.
But if you reinvest the interest (compound interest), the Rule of 72 tells you it’ll only take 7.2 years.
Another example: if your returns average 9% per year, your money would double in 8 years (72 ÷ 9).
It’s not perfectly accurate for extreme rates, but for most investments between 4%–12%, it’s remarkably close.
Why Use the Rule of 72?
It’s fast. It’s easy. And it helps you think long-term.
Here’s where it’s most helpful:
Investment Planning: Compare different return rates at a glance and understand what doubling your money might look like over time.
Retirement Savings: Work out how your KiwiSaver or superannuation balance might grow based on past returns.
Inflation Awareness: The Rule of 72 works in reverse, too—divide 72 by the inflation rate to see how long it takes for your money to lose half its purchasing power.
Example: if inflation is averaging 3%, your money’s value halves in roughly 24 years (72 ÷ 3 = 24).
The Rule of 72 and Property Investment
This isn’t just a tool for bank accounts or shares. It works for property value growth too.
If property in your region has averaged 5% annual growth, your property could double in value in approximately 14.4 years (72 ÷ 5).
This simple forecast helps long-term investors understand the compounding impact of capital gains—especially if leveraged with a mortgage.
How Accurate Is It?
While the Rule of 72 is great for back-of-the-envelope calculations, it has limitations:
It assumes a fixed annual return
It’s most accurate with returns between 4% and 12%
It doesn’t account for fees, taxes, or variable interest rates
It relies on compound interest, not simple interest
Still, for quick decision-making or comparing scenarios, it's a highly practical shortcut.
Tips for Using the Rule of 72 Effectively
Use it as a guide, not a precise forecast
Pair it with more detailed planning tools if you’re making major financial decisions
Regularly monitor your investments, as real-world returns often fluctuate
Combine it with other strategies like diversification to manage risk
Summary
The Rule of 72 offers a fast and intuitive way to understand the power of compound growth. While not exact, it’s an excellent starting point for building awareness around your investment timelines—whether you're saving in a bank account, investing in the stock market, or growing your wealth through property.
When used alongside smart financial advice and proper planning, it can help shape more confident, informed decisions.