The Rule of 72: Learn How To Double Your Money with Compound Interest
Did I have you at “double your money”?
You can double your investments quickly if you get a great rate of return thanks to the power of compound interest. But, how will you know what rate of return you need to double your money in the next 3, 5, or 10 years? Well, there’s a formula for that called the Rule of 72. It's a valuable tool that many investors use to quickly gauge their potential investment growth.
The Rule of 72 is not just any formula. It's a time-tested formula used by both old and new investors every day to estimate the amount of time it will take to double their investment - whether it is in a particular stock, a retirement account, or a savings account.
I use the Rule of 72 all the time. Chances are, if you've listened to InvestED or read either of my books, you've seen how I use it to get a clearer picture of my portfolio's future.
It's simple to learn and easy to use, so it's a great tool for all Rule #1 investors to have in their back pockets.
What is the Rule of 72?
The Rule of 72 is a simple equation to help you determine how long an investment will take to double, given a fixed interest rate.
It's a shortcut that you, as an investor, can use to estimate if an investment will double your money quickly enough to be worth pursuing. When you see how quickly your money can double, you'll understand the power of compound interest.
What is Compound Interest?
Compound interest is what makes you wealthy over time. The longer your money is invested, the faster it grows. The Rule of 72 applies to cases of compound interest, not simple interest.
Here’s why: As you earn interest on your initial principal, those earnings are added to your investment and start earning interest themselves. This powerful cycle leads to incredible wealth growth.
The Rule of 72 paints a picture of how quickly your money can grow without any additional investment on your part. It can provide an exact calculation of your future results and help with long-term financial planning.
Getting a sense of how compound interest can potentially grow your investment portfolio should be enough to light a fire under you. This can initiate your desire to start saving as early as possible, even if you only have a small amount.
Why Does the Rule of 72 Matter for Rule #1 Investors for Investment Growth?
Here’s where things get interesting. At Rule #1, we’re all about making smart, informed decisions—never gambling with your future. The Rule of 72 isn’t just a party trick; it’s a tool that helps you set realistic expectations and spot opportunities (or red flags) in your investment journey.
For example, if someone promises you a “guaranteed” 24% return, the Rule of 72 tells you your money would double in just three years (72 ÷ 24 = 3). That’s a huge red flag. As Phil Town likes to say, “If it sounds too good to be true, it probably is.” Use this rule to keep your feet on the ground and your goals in sight.
How to Use The Rule of 72 Formula
No need for a fancy calculator.
Just take 72 and divide it by your annual rate of return. Now you'll be able to estimate your doubling time:
72 ÷ annual interest rate = number of years required for your money to double.
Trying to compute what interest rate you'll need to double your money, given a specific number of years? Use this modified version instead:
72 ÷ number of years = annual interest rate
Here's an example, for illustrative purposes only.
If you’re earning a 10% annual rate of return, your money will double in approximately nine years (72 ÷ 10 = 7.2). This is an approximate number, but it is an incredibly useful estimation tool for quick financial planning.
For more complex equations related to evaluating your investments, use my investment calculators to crunch the numbers.
Examples of the Rule of 72
Let's try another one:
Given a 9% interest rate, how long will it take to double your money? Divide 72 by 9 and you'll get 8 years.
Let's relate this to a real-life event now:
OK, now let's apply this to a scenario where you already know the number of years you need to double your money, so you need to solve what the interest of your investment will be. You just need to reverse the equation.
Say you want to double your money in 3 years so you can put a down payment on a house.
Divide 72 by 3 to get 24. You will need a 24% rate of return on your investment. If you later decide not to buy the house and instead leave your money invested for another 6-7 years, then it would double two more times!
If you started with $10,000, then after three years you would have $20,000. After another three years, you would have $40,000, and after another three years, you would have $80,000. That's eight times more than what you started with, plus it only took nine years, given a 24% annual rate of return.
That's the power of compound interest—what makes investing an incredible way to grow your wealth over time. 72 works well in common interest situations and is more easily divisible.
Drawbacks of the Rule of 72
Remember, the Rule of 72 is an estimation; it's not exact.
Take the example above. When saving up to put a down payment on a house, the exact number of years it takes to double an investment at a 24% growth rate is 3.2 years. While this is extremely close, it's not 100% accurate.
The Rule of 72 is most accurate with annual compounding and fixed annual rates around 10%. If you’re dealing with continuous compounding or rates far from 10%, the estimate becomes less precise.
Also, the Rule of 72 assumes a fixed annual rate and doesn’t account for market volatility, fees, or costs. Past performance doesn’t guarantee future results, so always use this as a ballpark estimate rather than a promise.
While the Rule of 72 is useful for ballpark estimations, it's only helpful if you're investing in something that will actually achieve a consistent average return. That's why Rule #1 investors don't speculate — they invest in wonderful companies that are undervalued and likely to grow.
To calculate whether a company is likely to help you reach your target return, use the 4Ms checklist: Meaning, Moat, Management, and Margin of Safety. This helps reduce risk and maximize upside potential, improving your chances of achieving returns that allow your money to double every few years.
When investing in stocks, you won't experience a fixed annual rate of return. The stock market is volatile and doesn't guarantee consistent returns, especially in the short term.
This is why we evaluate a company thoroughly before investing in it. We want to know what average annual rate of return we can expect over the next five to ten years.
For our purposes, the Rule of 72 is accurate enough to give us a general idea of when we can expect our money to double.
When to Use the Rule of 72
So now you're wondering when to use the Rule of 72. There are so many scenarios where this easy formula can help you—from planning for the future and evaluating an investment to understanding the impact of debt.
To Plan for Financial Goals
If you’re saving for a big purchase or retirement, the Rule of 72 helps you estimate how long it will take your initial investment to double in value.
If you have financial goals where you want to know how long it will be until you meet them, or you want to know what interest rate you need in order to reach your 5 or 10-year goals, then use the Rule of 72.
For instance, if you need $100,000 to pay for your kid's college in 10 years, and you start with $50,000, then you'll need a 7.2% (72 / 10) annual rate of return on your investment.
But, if you start with $15,000, you'll need your money to double 3 times in the next 10 years. This means you'll want your money to double every 3.3 years and with a 21.8% (72 / 3.3) annual rate of return on your investment.
If you are investing for retirement, the Rule of 72 can be extremely beneficial. The amount of money you will need for retirement is a big number, but if you start early, even a small amount of money can double over and over again.
The Rule of 72 will tell you: The less time you have until you retire, the larger the annual rate of return you will need on your investments.
ON the other hand - if you have a long time until you plan to retire, you may be able to aim for a smaller annual rate of return.
To Evaluate Investments
You can also use the Rule of 72 to evaluate your investments. Of course, this is how I use it most.
If I'm comparing two potential investments and one will give me an 18% average return, and the other is 14%, then I will double my money a year sooner if I go with the investment that could produce an 18% annual rate of return on average.
If I leave the investment alone for 15 years, the first option will nearly double almost 4 separate times, while the second option will have only doubled 3 times.
Evaluating a company's value isn't about guessing — it's about using tools. My Rule #1 Toolbox includes calculators that make it simple to project a company's future value and determine if its current price gives you a sufficient margin of safety.
👉 You can also use our Rule #1 Calculators to assess whether a stock is priced to double your investment at your target return rate.
To Better Understand Debt
Just as compound interest works for you, it can work against you with high-interest debt. Yikes.
If you have credit card debt at a 20% interest rate, your debt will double in just 3.6 years if you don’t pay it off. That’s why it’s so important to pay off high-interest debt quickly.
How To Double Your Money
The Rule of 72 teaches us that a wonderful investment that produces high returns will help double your money fast. At Rule #1, we aim for a 26% annual return. It’s ambitious, but with the right strategy and by picking undervalued companies, it’s possible.
This means my money will double every 3 years. But you can't get these high returns with just any investment. You have to pick the right companies that will generate great returns year over year.
Why 26%? That might sound high, but it's achievable when you buy wonderful businesses on sale. Warren Buffett has averaged around 20%+ for decades by using a similar strategy, and we aim slightly higher to account for uncertainty and ensure a strong margin of safety
By targeting a 26% return, Rule #1 investors can aim to double their money every three years, even if some investments perform slightly under that target.
Of course, you can’t get these returns with just any investment. It takes financial education, patience, and a willingness to do your homework. To get a great return on your money, first, you have to learn how to invest. Join me at my next Free Investing Webinar to learn not only the basics of investing but also how you can find incredible companies that will give you that critical 26% annual return.
Once you know this, you'll be able to experience the magic of compound interest for yourself and double your money in no time.
Rule #1 Insights: Putting the Rule of 72 to Work
At Rule #1, we believe investing isn’t about luck or chasing the next big thing. It’s about understanding the math, doing your homework, and sticking to time-tested principles. The Rule of 72 is a simple yet powerful tool that helps you focus on the long game.
Here are a few Rule #1 tips to maximize your use of the Rule of 72:
Do your research:
Never invest in something you don’t understand, no matter how tempting the “doubling” timeline looks.
Be realistic:
Consistent, reasonable returns beat risky, high-flying promises every time.
Let compounding do the heavy lifting:
The earlier you start, the more time your money has to grow.
Common Questions About the Rule of 72
Is the Rule of 72 just for stocks?
Nope! You can use it for any investment with a fixed rate—bonds, mutual funds, even savings accounts.
Does it work for inflation, too?
Absolutely. If inflation is 3%, your purchasing power halves in 24 years (72 ÷ 3 = 24). That’s a sobering thought for any financial planning.
What about taxes?
Great question. Taxes can slow down your compounding, so always factor them in for more accurate results.
Final Thoughts on The Rule of 72
If you’re feeling overwhelmed by all the finance jargon, remember: great investing isn’t about being flashy. It’s about being smart. The Rule of 72 offers you a quick way to estimate how long it takes your money to double. Using it, you can make more informed decisions and set realistic financial goals.
If you want to learn more about how to use the Rule of 72 and other tools for financial planning, join us at Rule #1. We’re here to help you build wealth, make smart investment choices, and achieve the financial freedom you deserve.
Ready to put the Rule of 72 into action? Dive deeper with Rule #1’s resources and let’s build your investing confidence, one smart decision at a time.
**Editor's Note (Updated April 2025): This article was originally published in 2021 and has been significantly updated in 2025 to reflect current examples and Rule #1 investing insights.
