How do you calculate how long it will take to double your investment?

Ever wanted to know how long it takes to double your investment? With the Rule of 72, you can do just that, using a formula to see the length of time it’ll take to double your initial investment. But how does the Rule of 72 work, and what does it have to do with life insurance? We’ve got all the details in this guide. Here’s your cheat sheet to the Rule of 72 and how to make it work.

What is the rule of 72?

The Rule of 72 is a formula used to determine how long an investment takes to double, given a fixed annual rate of interest. You simply divide 72 by the annual rate of return, and, hey presto, you’ve got an indication of the length of time it will take to double your investment.

It’s a popular method with investors, as trying to forecast your rate of return can otherwise be tricky. With the Rule of 72, however, you can be more confident about potential returns and how long you can expect to wait before they become tangible assets.

Don’t just take our word for it, though. Here’s Tom Mathews and Steve Siebold from their book, “How Money Works”: “The Rule of 72 can give you an idea of how many doubles you’ll get in your lifetime. With more time, a lower interest rate may give you enough to nail your goals. With less time, you may need a higher interest rate.”

How does it work?

The calculation for the Rule of 72 is pretty straightforward. Divide 72 by the interest rate to see how many years it’ll take to double your return. For example, an interest rate of 3% used for the Rule of 72 would look a little something like this:

72/3=24

That means you can expect to wait 24 years for your investment to double if it’s in an account where the interest rate is 3%. If you’re using something like a standard savings account, where interest rates tend to be around 0.9%, you can expect to wait 800 years. You better start binge-watching Netflix to pass the time.

The Rule of 72 in action

Relying on a standard savings account might not be the best way to maximize returns. Most people tend to keep their money in high yield savings accounts or a certificate of deposit, both of which offer higher interest rates.

Then there’s the stock market, employer-sponsored 401(k), a traditional Roth IRA, or an individual brokerage account. All of these investment types can help you grow your money, and using the Rule of 72 is a good way to determine how much you can make.

The Rule of 72 also works for credit cards, car debts, loans, and even home mortgages. You can use it to see how many years it’ll take your money to double for someone else. If you’re not a sadomasochist, however, perhaps it’s best to stick to working out the numbers for your own personal gain.

Life insurance and the Rule of 72

When you take out a permanent life insurance policy, all of a sudden, you’ve got yourself a savings account. That’s because perm coverage comes with something called “cash value,” which lets you build wealth while you’re still alive.

Essentially, you pay into two pots: the death benefit and cash value. Both of these accrue with each monthly payment, and you can access the cash value later on in life. Even better, your wealth tends to grow on an average of 6%-8% annually with permanent life insurance.

Let’s be rather more modest and take that 6% figure. Using the Rule of 72 and dividing 72 by 6, we get 12. That means you can double your investment in just 12 years if your cash value grows at a rate of 6%. Bump it up to 8%, and you’re doubling your investment in just 9 years.

So if you took out a permanent life insurance policy in your 20s, you could double your investment every 9 years at an annual growth rate of 8%. In 40 years, you could more than quadruple your investment. Suddenly, you’ve got yourself a nice little nest egg for retirement.

Getting a permanent life insurance policy allows you to both look after your family after you pass and grow wealth while you’re still alive. And with the Rule of 72, you calculate impressive returns for your investment in a perm policy.

In conclusion: The Rule of 72

Using the Rule of 72 is a smart way to get a better indication of how much you can earn over a specific period of time. While you need to factor in things like changing interest rates, it still provides you with a foundation and pretty solid numbers. You can remove much of the guesswork and feel more confident about your investments.

The Rule of 72 is an easy way for an investor or advisor to approximate how long it will take an investment to double based on its fixed annual rate of return. Simply divide 72 by the fixed rate of return, and you’ll get a rough estimate of how long it will take for your portfolio to double in size.

The science isn’t exact, though, and you may want to use a different formula to account for rates of return that fall outside a certain range. 

Key Takeaways

• The Rule of 72 is a simple way to calculate how long it will take an investment to double based on the annualized rate of return.
• Investors can use the rule when planning for retirement, education expenses, or any other long-term financial goal.
• For more accuracy, investors can use a logarithmic formula to calculate the time for an investment to double.
• In some situations, investors might want to use the Rule of 70 instead.

What Is the Rule of 72?

The Rule of 72 is a rule of thumb that investors can use to estimate how long it will take an investment to double, assuming a fixed annual rate of return and no additional contributions.

If you want to dive even deeper, you can use the Rule of 115 to determine how long it will take to triple your investment. 

Both of these rules of thumb can help investors understand the power of compound interest. The higher the rate of return, the shorter the amount of time it will take to double or triple an investment. 

How To Use the Rule of 72 To Estimate Returns

Let’s say you have an investment balance of $100,000, and you want to know how long it will take to get it to $200,000 without adding any more funds. With an estimated annual return of 7%, you’d divide 72 by 7 to see that your investment will double every 10.29 years. 

Here’s an example of other rates of return and how the Rule of 72 affects your investment:

Rate of ReturnYears it Takes to Double1%722%363%244%185%14.46%127%10.38%99%810%7.211%6.512%6

However, the calculation isn’t foolproof. If you have a little more time and want a more accurate result, you can use the following logarithmic formula:

T = ln(2) / ln(1+r)

In this equation, “T” is the time for the investment to double, “ln” is the natural log function, and “r” is the compounded interest rate. 

So, to use this formula for the $100,000 investment mentioned above, with a 6% rate of return, you can determine that your money will double in 11.9 years, which is close to the 12 years you'd get if you simply divided 72 by 6. 

Here's how the logarithmic formula looks in this case: 

T = ln(2) / ln(1+.06)

Note

If you don’t have a scientific calculator on hand, you can usually use the one on your smartphone for advanced functions. However, the basic calculation can give you a good ballpark figure if that’s all you need.

How To Use the Rule of 72 To Estimate Compound Interest

Like most equations, you can move variables around to solve for others that aren’t certain. If you’re looking back on an investment you’ve held for several years and want to know what the annual compound interest return has been; you can divide 72 by the number of years it took for your investment to double.

For example, if you started out with $100,000 and eight years later the balance is $200,000, divide 72 by 8 to get a 9% annual rate of return. 

Grain of Salt

The Rule of 72 is easy to calculate, but it’s not always the right approach. For starters, it requires a fixed rate of return, and while investors can use the average stock market return or other benchmarks, past performance doesn’t guarantee future results. So it’s important to do your research on expected rates of return and be conservative with your estimates.

Also, the simpler formula works best for return rates between 6% and 10%. The Rule of 72 isn’t as accurate with rates on either side of that range. 

For example, with a 9% rate of return, the simple calculation returns a time to double of eight years. If you use the logarithmic formula, the answer is 8.04 years—a negligible difference.   

In contrast, if you have a 2% rate of return, your Rule of 72 calculation returns a time to double of 36 years. But if you run the numbers using the logarithmic formula, you get 35 years—a difference of an entire year. 

As a result, if you’re looking to just get a quick idea of how long your investment will take to double, use the basic formula. But if you’re calculating the figure as part of your retirement or education savings plan, consider using the logarithmic equation to ensure that your assumptions are as accurate as possible.

Note

The Rule of 72 works best over long periods of time. If you’re nearing retirement, it may not be as helpful because short-term volatility can give your annual return rate less time to even out. 

Rule of 72 vs. 70

The Rule of 72 provides reasonably accurate estimates if your expected rate of return is between 6% and 10%. But if you’re looking at lower rates, you may consider using the Rule of 70 instead.

For example, take our previous example of a 2% return. With the simple Rule of 70 calculation, the time to double the investment is 35 years—exactly the same as the result from the logarithmic equation.

However, if you try to use it on a 10% return, the simple formula gives you seven years while the logarithmic function returns roughly 7.3 years, which has a wider discrepancy. 

As with any rule of thumb, the Rules of 72 and 70 aren’t perfect. But they can give you valuable information to help you with your long-term savings plan. Throughout this process, consider working with a financial advisor who can help you tailor an investment strategy to your situation.

Frequently Asked Questions (FAQs)

What is the Rule of 72 used for?

The Rule of 72 is a quick formula you can use to estimate the future growth of an investment. If you know the average rate of return, you can apply a simple formula to determine how long it will take to double your investment, assuming you don't put more money into it.

Who invented the Rule of 72?

The earliest known reference to the Rule of 72 comes from Luca Pacioli's 1494 book, "Summa de Arithmetica." This book went on to be used as an accounting textbook until the mid-1600s, granting Pacioli the title of the Father of Accounting.

When does money double every seven years?

To use the Rule of 72 to figure out when your money will double itself, all you need to know is the annual rate of expected return. If this is 10%, then you'll divide 72 by 10 (the expected rate of return) to get 7.2 years. Use this same formula to figure out the return on other investments by diving 72 with the expected annual rate of return.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Stanford University. "EE204: Business Management forElectrical Engineers and Computer Scientists."

2. Chance. "How the Rule of 72 Can Provide Guidance to Advance Your Wealth, Weight, Career, and Gas Mileage."