How many years does it take to double my money if I get a 9% return on investment use the Rule of 72 )?

Every investor wants to grow his wealth by as much as possible in the shortest period of time. The time span required to double your money would depend on the returns or interest rate earned on your investments. Obviously, higher the interest or return on your investment, faster will your money double. You can very easily find out the time your investments would take to double your money using a DIY formula called 'the rule of 72'.

Rule of 72 is a simple formula where you divide the number '72' with the interest rate offered by your investment instrument to get an idea on how soon can you double your money with that particular investment.

For an instance, a bank FD offering an interest rate of 5% p.a., will take over 14 years to double your money. The formula is applied as below:

Rule of 72

=72/5

= 14.4 years

How much returns should your investments generate if you want to double your money?

Alternatively, by tweaking the formula a bit, you can find out returns required to double your money in a specific period. Let's find out:

If you want to double your money in three years, your investments should earn between 21% to 24% (72/3 years) every year.

Similarly, if you want to double your money in five years, your investments will need to grow at around 14.4% per year (72/5).

If your goal is to double your invested sum in 10 years, you should invest in a manner to earn around 7% every year.

Rule of 72 provides an approximate idea and assumes one time investment.

Time to double money under PPF, Sukanya Samriddhi Yojana, KVP, NSC, NPS and mutual funds

We have taken the current interest rates or returns offered by these instruments.

PPF at an annual interest rate of 7.1% will take around 10 years to double your money assuming the interest rate remains at 7.1% (72/7.1 =10.14).

Similarly, Sukanya Samriddhi Yojana will take around 9.4 years to double your money at the current interest rate of 7.6%.

KVP will take 10.4 years to double your money at the current interest rate of 6.9%.

National Savings Certificates at 6.8% interest rate will take 10.5 years to double your investments.

NPS Scheme C, Scheme G of Tier II account are giving on an average 11.5% returns in the one year period. Assuming similar performance, NPS will take 6.2 years to double your investments.

Short duration mutual funds and dynamic bond funds at present are giving around 8.5% returns in the last one year. Assuming similar returns, these instruments will take 8.4 years for your investments to double.

Debt medium to long duration mutual funds at 8.7% returns p.a, will take 8.3 years to double your investments.

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If you’ve ever wanted to convince someone else or yourself about the power of compounding – and why they should begin investing today – then the “Rule of 72” is a useful rule of thumb to depict its benefits.

The “Rule of 72” is a simple way to estimate how many years it takes for your investments to double, compounded at a fixed annual rate of return. To enjoy the effect of compounding, you must also reinvest your yearly returns and strive to receive the same annual rate of return each year.

What does the “Rule of 72” say?

Remember that this rule of thumb is not a substitute for proper calculations, which typically require a scientific calculator and a good understanding of logarithms. That being said, it is a really handy tool to quickly derive a relatively accurate estimate for how long it takes to double your investments. 

Here’s the “Rule of 72” formula:

Years required to double your investments = 72 / Compound Annual Interest Rate (CAGR)

Simple? For example, the CPF Special Account currently gives 4% in interest per annum. Thus, using the “Rule of 72”, it will take 72/4 = 18 years for our monies to double. The actual number of years is 17.67, which shows the “Rule of 72” is pretty close.

If you are able to achieve a higher rate of return, even by a few percentage points, you will drastically shorten the amount of years required to double your investments. Similarly, if you receive a lower rate of return each year, you may take a much longer time to double your investments.

Here is a table of annual compounded interest rates, and what the “Rule of 72” gives, compared to the actual number of years.

In general, the “Rule of 72” gets you quite close to the actual figures, though it may become pretty inaccurate once interest rates are at 20% and higher. If you’re able to achieve such interest returns on an annual basis over a long period of time, it’s safe to assume you will be able to derive such complicated calculations on your own.

Applications of Rule of 72 

The Rule of 72 could apply to anything that grows at a compounded rate, such as population, GDP growth and even inflation, investment returns or fees.

For most, returns and fees are important figures you may want to calculate before making an investment. You can use the table above to estimate how long your investments will take to double, and how long more you need if you factor in annual investment fees.

The rule can also be used to find the amount of time it takes for your money's value to halve due to inflation. If inflation is 6%, then a given purchasing power of the money will be worth half in around (72 ÷ 6) = 12 years. If inflation decreases from 6% to 4%, an investment will be expected to lose half its value in 18 years, instead of 12 years. This is also another important reason to invest, and to receive an investment return that beats the inflation rate.

What can the “Rule of 72” teach us?

The Rule of 72 depicts how even a “small” 1% difference in inflation, fees or investment return can have a large effect in forecasting models. If you wish to double your money, receiving a single percent less can extend the number of years you need to reach your goal.

This also highlights the importance of carefully evaluating the potential returns of each investment product, after accounting for fees and costs. These differences can add up significantly over the long run and have a big impact on your retirement plans.

Secondly, the rule elegantly illustrates the “magical” power of compounding. If you diligently invest and receive even a modest rate of return (4% to 5%), you can actually double your initial capital in less than two decades.

In order to allow this compounding to work, all that’s needed is time and diligence. By planning for one’s retirement early and starting to invest today, you can ensure you’re growing your retirement nest egg so that it will be ready for your retirement needs in your golden years.

Someone who starts investing only in their forties may need to contribute many times more money to their retirement funds, but will still not have a larger retirement nest egg compared to someone else who started in their thirties or even twenties. This is because they were not able to leverage on time to compound their investments.

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