November 18, 2022
How to estimate when your money will double – ‘The rule of 72’
With investors facing increasing market volatility and persistent inflation, it is easy to forget that investing is a long-term game
With investors facing increasing market volatility and persistent inflation, it is easy to forget that investing is a long-term game. And with many retirees living well into their 90s, they may also want to know how their money may grow over time. Through the markets ups and downs, there are principles that do not change for all investors, whether risk-averse or risk tolerant. One of those principles is the rule of 72.
The rule of 72 is a simple formula that can help estimate how long it will take to double your money. It essentially calculates the period of time that it will take to double your money if you earn an x% after-tax compound annual rate of return. Conversely, the formula can also be used to calculate the rate of return that must be earned to double your money in X years1.
· Estimating using rate of return: To estimate the number of years to double your money at a hypothetical 6% rate, for example, simply divide 72 by the rate of return percentage, 6, to get 12 years.
· Estimating using number of years: To estimate the rate of return needed to double your money in 8 years, for example, simply divide 72 by the number of years, 8, to get 9%.
*If you know one of these two variables, you can calculate the other.
