The Rule of 72 is a simple yet powerful formula—a quick mental math shortcut that lets you estimate how long it will take to double your money at a given rate of return. It provides a quick snapshot of your financial growth, helping you make smarter decisions and move closer to your Rich Life.
The Formula
The formula for the Rule of 72 is incredibly simple: Divide 72 by your expected rate of return to estimate how many years it will take for your investment to double.
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72 ÷ return rate = number of years to double your investment |
Unlike other financial formulas that require calculators or spreadsheets, the Rule of 72 offers a quick and reliable way to estimate compound growth, making it easier to make informed financial decisions. It’s simple but powerful when it comes to understanding the impact of different investment choices.
Financial experts have used this formula for decades, as it delivers surprisingly accurate results for most investment return rates between 4% and 12%.
If you’re looking for other quick and easy rules to help you stay on top of your finances and build wealth that can unlock your Rich Life, watch this video on the 10 Money Rules to Build Life-changing Wealth.
How to Use the Rule of 72
The basic calculation
To apply the Rule of 72, divide the number 72 by your expected annual return rate (in numeric value), which refers to the percentage gain (or loss) your investment generates over a year:
72 ÷ return rate = years to double investment
The result will be the number of years it will take for that investment to double, assuming the same rate of return continues to apply.
For example, if your investment earns an 8% annual return, it will double in approximately nine years (72 ÷ 8 = 9). Increase the return to 12%, and your money doubles in just six years (72 ÷ 12 = 6).
The Rule of 72 works with any percentage. For instance, for a 7.2% return, the calculation would be 72 ÷ 7.2 = 10 years to double your investment.
This quick calculation helps you compare different investment options such as stocks, bonds, retirement funds, and savings accounts, making it easier to visualize potential returns.
Real-world examples
Let’s explore how the Rule of 72 applies to various investment scenarios:
- High-yield savings accounts (2%): A savings account earning 2% interest would take 36 years to double your money (72 ÷ 2 = 36). Hence, these accounts are best for growing emergency funds rather than long-term wealth building.
- Stock market (10%): With the stock market’s historical average return of 10%, your investment could double in 7.2 years (72 ÷ 10 = 7.2). This demonstrates the power of long-term stock investing in growing wealth over time.
- Credit card debt (18%): If you’re paying 18% interest on credit card debt, your balance doubles against you in just 4 years (72 ÷ 18 = 4). This shows how high-interest debt can quickly spiral out of control, making debt repayment a top priority.
- Real estate (6%): A typical real estate investment with a 6% return would double your money in 12 years (72 ÷ 6 = 12). This figure does not account for potential rental income or property appreciation, which makes it a feasible investment option for those with solid capital looking for steady, long-term growth.
These examples illustrate how different return rates impact your money’s growth—and why understanding them can help you make smarter financial decisions.
Rule of 72 in action with my podcast guests
On my podcast, Money for Couples, I spoke with LaKiesha and James, who at ages 38 and 45 had zero savings or investments. With retirement approaching and no financial safety net for their children, they knew they needed to take action.
Using the Rule of 72, if they invested aggressively and achieved an average 7% return, their money would double approximately every 10.3 years (72 ÷ 7 = 10.3).
For James, at 45, this means he would see two doubling periods before reaching 65. Meanwhile, at 38, Lakiesha would have the potential for nearly three doubling periods, giving her more time to grow her wealth.
This simple calculation provides a clear visualization of how your investments can grow—and why it’s crucial to start investing as early as possible to take advantage of compounding growth.
Quick mental math for financial decision-making
The Rule of 72 helps you quickly assess whether an investment aligns with your financial goals and time horizon. For example, if you’re looking to double your money in five years, you’d require an annual return of approximately 14.4% (72 ÷ 5 = 14.4%).
This rule is also helpful when comparing different investment options side by side to evaluate which ones align best with your goals. If one investment offers 6% returns while another offers 9%, you can instantly see that the difference means doubling your money in 12 years versus eight years.
The rule also applies to inflation. At 3% inflation, the purchasing power of your money halves in 24 years (72 ÷ 3 = 24), emphasizing the importance of investments that outpace the rate of inflation.
The Rule of 72 in Action
Here’s how the Rule of 72 acts as a powerful tool in various financial scenarios:
Doubling $10,000 at various interest rates
Let’s take $10,000 as a hypothetical base investment amount and explore its growth with various interest rates. How long does it take to double this amount with the Rule of 72?
- Conservative investments at 4% returns: Your $10,000 doubles to $20,000 in 18 years, then grows to $40,000 in 36 years, and $80,000 in 54 years.
- Moderate portfolios with 8% returns: Your $10,000 becomes $20,000 in nine years, then $40,000 in 18 years, and $80,000 in 27 years—growing twice as fast as a 4% return.
- Aggressive growth portfolio with 12% return: Your $10,000 doubles in six years, grows to $40,000 in 12 years, and $80,000 in 18 years. At this rate, after 36 years, your original $10,000 could grow to over $320,000.
This illustrates how compound growth can significantly increase your wealth over time; even with a small initial investment, you can achieve substantial financial growth in the long run.
Comparing common investment vehicles
Using the Rule of 72, here’s how various investment types grow:
- Index funds (8-10% historical returns): Doubling your money every seven to nine years, index funds are a strong choice for long-term, hands-off wealth building.
- Corporate bonds (5% yield): This will take approximately 14.4 years to double your investment, offering more stability but slower growth compared to stocks.
- Real estate investment trusts (REITs) (7% average returns): Double your investment in about 10.3 years, providing diversification beyond stocks.
- Treasury bills (2% yield): These require 36 years to double, which shows that relying solely on ultra-safe investments is not as effective for building wealth.
For a more detailed calculation of your investment potential, you can use my Investment Calculator.
The dramatic difference between 4% and 10% returns
When it comes to investing, a small difference in return rates can lead to a massive gap in long-term wealth.
Let’s put this into perspective: Over 40 years, a $10,000 investment at 4% grows to about $48,000, while the same amount at 10% skyrockets to approximately $452,000—a staggering $404,000 difference from just a 6% higher annual return.
This also highlights why minimizing fees is crucial. For example, an index fund with 0.1% fees versus an actively managed fund with 1.5% fees could mean adjusting the earnings from 9.9% to 8.5%, significantly extending the time it takes to double your money.
Compound Interest: The Eighth Wonder of the World
Since we’re discussing investments and compound growth, let’s take a closer look at compound interest—one of the most powerful tools for reaching your financial goals. Here’s how it works and why it can make a massive difference over time.
How doubling doesn’t stop at the first cycle
The true magic of compound interest becomes more apparent in the later doubling cycles, when your money grows by larger and larger absolute amounts even though the percentage remains constant.
While the first doubling of $10,000 adds $10,000 to your wealth, the fourth doubling adds $80,000, and the seventh doubling adds $640,000. This acceleration explains why people who start investing even small amounts in their 20s often end up with more money than those who start with larger amounts in their 40s.
If you’re excited to take action towards investing, here’s a quick and easy guide on investment for beginners.
Visualizing multiple doubling periods
Most people easily grasp the concept of linear growth—for example, saving $5,000 per year for 10 years adds up to $50,000. However, exponential growth, driven by compound interest, works wonders in the same amount of time.
Instead of just adding a fixed amount each year, your investments grow on top of previous gains, leading to massive long-term results.
Take this example:
If your money doubles every seven years, a $10,000 investment can grow far beyond your expectations. After the first doubling, it becomes $20,000. By the third doubling, it’s $80,000. But the real magic happens further down the line—by the tenth doubling, your $10,000 has skyrocketed past $10 million.
This illustrates why starting early and staying invested matters. The longer you allow your money to compound, the more powerful each doubling period becomes, transforming even the most modest investments into substantial wealth over time.
Why Einstein called compound interest “the most powerful force in the universe”
Albert Einstein famously called compound interest the “eighth wonder of the world,” highlighting its ability to turn small, consistent gains into extraordinary results over time.
His attributed quote about compound interest—“He who understands it, earns it; he who doesn’t, pays it”—serves as a powerful reminder that compounding is a double-edged sword. When you invest, compound interest accelerates your wealth. But when you owe money, especially high-interest debt like credit card debt, it can rapidly spiral out of control.
The Rule of 72 captures this power in a simple, intuitive formula, helping you visualize just how quickly money can grow—or how quickly debts can double—based on the rate of return.
The Rule of 72 for Different Financial Goals
Retirement planning
