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Related Content. Retirement 1 min activity. Figure out what interest rate you need for an investment to double in a set number of years.
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Figure out how long it will take for an investment to double. Banzai interactive courses are fun and free. Go ahead. The formula works exactly the same either way — simply plug in the inflation rate instead of the rate of return, and you'll get an estimate for how many years it will take for the initial amount to lose half its value.
To calculate the doubling time using the Rule of 72, you'd input the numbers into the formula as follows:. All of this is also assuming you're not adding to your initial investment over time, which makes the fact that your money is doubled in less than a decade all the more impressive. The number 72 is a good estimator in most situations and, thanks to it being an easily divisible number, it makes for simple math. Most investment accounts, including retirement accounts, brokerage accounts, index funds, and mutual funds fall into this range of return.
But with a different range, you might want to fiddle a bit — same formula, but different numbers to divide by. At really high interest rates, for example, using the number 78 will give more accurate results. On the other hand, 69 or 70 are more accurate for lower interest rates and interest that compounds daily. Daily compounding is rare in investing and mostly happens with savings products such as high-yield savings accounts and certificates of deposit CDs.
The Rule of 72 offers a quick and easy way for investors to project the growth of their investments. By showing how quickly you can double your money with minimal effort, this rule beautifully demonstrates the magic of compounding for building wealth.
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By dividing 72 by the annual rate of return , investors obtain a rough estimate of how many years it will take for the initial investment to duplicate itself. The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase. The Rule of 72 can estimate compounding periods using natural logarithms.
The most important property of the number e is related to the slope of exponential and logarithm functions, and it's first few digits are 2. The natural logarithm is the amount of time needed to reach a certain level of growth with continuous compounding.
The time value of money TVM formula is the following:. To see how long it will take an investment to double, state the future value as 2 and the present value as 1. Simplify, and you have the following:.
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