What is the "72 rule" used for in finance?

The "72 rule" is a straightforward mental calculation that helps individuals estimate how long it will take for an investment to double in value, based on a fixed annual rate of return. By dividing the number 72 by the annual interest rate (expressed as a percentage), one can quickly approximate the number of years required for the initial investment to double. For example, if an investment earns an 8% return, using the rule, one can determine that it will take approximately 9 years for the investment to double (72 divided by 8).

This rule is popular among investors because it simplifies the concept of compound interest, allowing for quick estimates without the need for complex calculations or financial tools. The accuracy of the rule is generally good for interest rates in the range of 6% to 10%, making it a practical tool in personal finance.