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Finance Glossary

Just call us Bond. Amortized bond.

Over 700 finance terms, Shmooped to perfection.

Rule Of 72

Definition:

A nifty little equation that lets you use the number 72 to figure out how long it will take for you to double the value of your investment. Just divide 72 by the annual rate of return on an investment to find out how many years will take for it be worth twice as much.

Example

You buy $1,000 worth of a stock (50 shares at $20 a share), which compounds at 8% per year. The Rule of 72 tells you how many years it'll take to double the principal compounded value of that stock—to get the magic number, you take that 8 and divide it into 72. In this case, at an 8% compound rate, it'll take you 9 years to double your money.