The Rule of 72 — How Long Does It Take to Double Your Money?
This trick will show you — without a calculator.
This week's posts are about finance rules, explained in simple terms. You'll see that it is not rocket science. Let's go.
We hear it all the time:
“Invest your money. Let it grow.”
But how fast does it actually grow?
That’s where the Rule of 72 comes in — one of the simplest and most useful shortcuts in personal finance.
What Is the Rule of 72?
The Rule of 72 helps you estimate how many years it will take to double your money based on a fixed annual return.
🔢 The formula:
72 ÷ annual interest rate = years to double your money
It’s not exact — but surprisingly accurate for interest rates between 4% and 12%, which are the most realistic for traditional assets like stocks and ETFs.
Example 1: A 6% Return
If your investment earns 6% per year, the Rule of 72 says:
72 ÷ 6 = 12 years
So it would take 12 years for your money to double. A 6% is quite realistic, most ETFs historically returned that if not more.
Example 2: A 9% Return
72 ÷ 9 = 8 years
With a 9% return, your money doubles in 8 years. Not bad, right? — and this is why compounding is so powerful.
Why This Rule Is So Useful
It is quick mental math — no spreadsheet or app needed
Helps you compare savings accounts, ETFs, or other investments
Shows how even small changes in return rates make a big difference over time
Reveals the cost of inflation (e.g. 4% inflation halves your purchasing power in 18 years)
Real Insight: It's Not Only Growth — It’s Time
Money doesn’t grow linearly — it compounds.
That means the longer you let it sit and work, the more dramatic the growth becomes.
Understanding the Rule of 72 helps you:
Get realistic about returns
Stop underestimating the impact of inflation
See why starting early is such a massive advantage
What It Doesn't Tell You
This is a rough estimate, not a precise tool. It:
Assumes constant returns
Ignores taxes, fees, and volatility
Doesn’t factor in withdrawals or additional contributions
But for mental models and everyday decision-making, it’s gold.
Summary
The Rule of 72 = 72 ÷ return rate
It tells you how long to double your money
Use it to spot good (and bad) investments fast
Helps you understand why time in the market > timing the market
📚 Further Reading:
Investopedia: Rule of 72
Warren Buffett on compound interest (Yahoo Finance)
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