How to Double Money (Rule of 72)

Doubling your money isn’t as hard as you think. You only need two things: (1) consistent financial returns and (2) time. We know that ironically we can get better returns than the average investor when we choose to accept the market returns rather than trying to beat the market, but how much time does it take to double your money?

The rule of 72 is a quick and easy back-of-the-envelope way to make this calculation. Let’s say you have an investment that earns 9% a year. If you divide 72 by 9, you get 8. It’ll take you 8 years to double your money with a 9% return. Getting a 4% return? It’ll take you 18 years to double your money.

How accurate are these numbers? Not too far off. They’re based on annual compounding interest, so you’ll do a little better if you’re getting daily compounding interest (more like the rule of 69). But 72 is a little more friendly for doing the calculations in your head, since 72 is divisible by 36, 24, 18, 12, 9, 6 and 3 (which returns would double your money in 2, 3, 4, 6, 8, 12 and 24 years respectively).

If you’re dealing with rates like 10% or 5%, you can use 70 as a decent approximation for how long it’ll take to double your money (so 7 and 14 years, respectively). Between those two numbers, you’ll basically cover all reasonable expected returns.

Earlier, I wrote a post about calculating the market’s historical return as a helpful indicator for possible future returns. You’ll want to use the Compound Annual Growth Rate (CAGR) to get an idea of past market performance, which from 1871 to 2016 shows a return of 9.07% (not adjusted for inflation).

Getting a 9% return in the market means you’ll double your money every 8 years.

Why is it helpful to know how long it takes to double your money? Let’s say you have $250,000 saved up and you’re 35 years old. If you leave the money untouched and receive a 9% annual return, you can expect to see $500,000 when you turn 43. That’ll grow to $1,000,000 when you’re 51 and rise to $2,000,000 on your 59th birthday. Live to be 75 and you’ll have $8,000,000. Now we understand why Warren Buffett is so rich. Living a long life and letting compound interest do the heavy lifting is miraculous.

Of course, we’re not adjusting for inflation with the above numbers, so it’s hard to appreciate how much $8 million will be worth in 40 years.

To make the calculation taking inflation into consideration, we simply need to switch to the inflation-adjusted market return, which for the same period is 6.88%. If we round that up to 7%, we get a rough calculation of about 10 when we approximate by using the 70 instead of 72. Since we’ve both rounded the interest rate up and decreased the numerator from 72 to 70, these numbers will be a little off but still a reasonably close approximately.

With inflation adjusted returns in mind, our hypothetical 35 year old with $250,000 will see $500,000 at 45. That’ll turn into $1,000,000 by 55, $2,000,000 at 65 and he’ll finish with $4,000,000 when he turns 75. That’s half as much as when we didn’t adjust for inflation, but $4M in today’s dollars is a pretty comfortable retirement. Not too bad, huh?

You can also use the rule of 72 to understand why credit cards are such a good deal for the big banks. Paying 28% interest? Even for a month? The banks will double their money in 2.57 years. Perhaps now you understand why they don’t mind losing money by sending you a credit card offer every few days. It’s a drop in the bucket if you can double your money that quickly.

Joshua Holt is a former private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He spends 10 minutes a month on Empower keeping track of his money. He’s also maxing out tax-advantaged accounts like 529 Plans to minimize his taxable income.