The Rule of 72 is a simple formula used to estimate the number of years required to double an investment at a given annual rate of return. To use the rule, divide 72 by the annual rate of return to get the number of years it will take for the investment to double. For example, if an investment earns a 6% annual return, it will take approximately 12 years (72 divided by 6) for the investment to double in value. The rule is most accurate for interest rates between 5% and 10%.

The Rule of 72 applies to compound interest, not simple interest. It is a quick and easy method for estimating investment growth, but it is not perfectly accurate. The value 72 is a convenient choice of numerator because it has many small divisors, making it easier to use for a close approximation of compounding periods. However, for more accurate results, investors can use the Rule of 69.3, which is more accurate for continuous compounding interest rate instruments.

The Rule of 72 can be used for anything that increases exponentially, such as GDP or inflation, and it can also indicate the long-term effect of annual fees on an investments growth. Although the rule is less precise as rates of return increase, it is still a useful tool for estimating investment growth and planning for long-term investments and retirement goals.