What does the "Rule of 72" help to estimate?

The "Rule of 72" is a simple mathematical formula used to estimate the time it will take for an investment to double in value at a fixed annual rate of return. By dividing 72 by the annual rate of return (expressed as a percentage), investors can quickly get an approximation of how many years it will take to see their investment grow to double its initial amount. For instance, if you have an investment that earns a 6% annual return, dividing 72 by 6 yields 12, suggesting it will take approximately 12 years to double that investment.

This rule is particularly useful for individuals who want to gauge the potential growth of their investments without getting into complex compound interest calculations. It is not intended to calculate the amount of savings needed for retirement, the annual rate of return itself, or the total interest earned, which require different methodologies and considerations.