Double Your Money in Seven Years?

When I first meet with a new investor, I often ask if they know about or understand the significance of the “Rule of 72.” I cannot recall anyone saying that they knew what it is much less why it might matter when selecting investments. This rule can help inform your choices when it comes to the types of investments you select. It might also help you think more carefully about certain investment strategies, including ROTH IRA conversions.

Before I explain the 72 rule, which has both a time element and a growth element, it is helpful to compare investing with planting crops or creating a garden. Why should you plant, what should you plant, where should you plant, and what are the things that can ruin your garden?

The Principle Reason to Plant (Invest)

When a farmer plants seeds he is expecting to get more back than he put into the field. Much of the gain is not from work (but the work is important), but from patient waiting and watching. In much the same way, the seeds sowed by the investor should start to provide a crop. The ongoing harvests can be used to buy more investment acreage to grow even more crops (investments). During the year, much of the time is devoted to doing nothing. You don’t have to sow seed every day or gather a harvest every week.

Rules for Planting (Investing)

Every gardener recognizes that there are at least four vital elements in a successful garden. They are sun, water, soil, and pest avoidance. In a similar way, the investor should be alert for the conditions and qualities of investments in the overall investment landscape. A successful investor also should avoid pests. Those pests include high expense ratios, ongoing maintenance fees based on total assets, and investments that slowly diminish the value of the crop due to inflation.

The Rule of 72

Just about every person will retire from their work. Some will retire to do other things including spending more time using their skills and resources to help others. The rule is quite simple and takes less than a minute to help clarify how your investment harvest can look when it is time to harvest and engage in post-retirement activities. The rule of 72 has great value if you are 20 years old, significant value if you are 50 years old, and I still consider it valuable at age 74. What is the rule?

“The rule of 72 calculation is a quick way to estimate how long it will take for an investment to double in value.” – Investopedia

Rule of 72 Formula

The rule of 72 is a formula. You only need two numbers. One is provided: it is the number 72. The second number requires a bit more thought and it will always be an educated guess. The guess you make should be related to the types of investments you buy for your investment field. If you buy lots of bonds, your second number should be 4% but if you are interested in investment growth you will want to have a number that is 10% or more.

The second number is your best guess as to what your average rate of return will be over the years you are investing. If for example you put your money in a savings account that is paying 0.01% interest, then you can know without any “Rule of 72” math that your money will never double in your lifetime.

If you choose the bond path, and your returns over time average 4%, then it will take eighteen years for your current balance to double. (74/4 = 18). If you choose to invest in stocks and ETFs that focus on quality stocks, then it is not unreasonable to expect 10% returns. If you use the number ten for the denominator, your investment dollars will double in 7.2 years. (72/10 = 7.2).

There you have it. Simply divide 72 by the expected average rate of return or interest rate anticipated on an investment. Years Until Investment Doubles In Value = 72 / Expected Avg. Rate of Return

If you are twenty years old, and you are disciplined in saving for retirement, you might retire in 45 years. If you invest in assets that grow 10% (on average), your dollars can double over six times before retirement. That is why my traditional IRA balance is as big as it is.

However, even in retirement the law continues to work. We don’t invest in bonds, and I can reasonably expect 9-10% growth from our investments. Therefore, excluding a market catastrophe, my IRA balance could easily double by my 81st birthday. That presents a significant problem. The problem is income taxes and the RMD.

Rule of 72 and ROTH Conversions

Why does a ROTH conversion matter and when does it make sense? Think about the impact of the growth over time, not just the current traditional IRA balance. Think about filing income taxes as a single person. Today, and as long as both my wife and I are living, we pay our income taxes as a married couple filing jointly. The day is coming when that will not be true. When that happens the income tax will be significantly higher. To make matters worse, the rule of 72 reminds me that today’s balance is likely to double in seven years. That increases the income tax.

Therefore, I have been doing ROTH conversions each year in a tax-advantaged way. So far in 2025 I have moved shares of various stocks and ETFs from my IRA to my ROTH. The total amount converted to date is just a bit above $62K. We will have to pay income taxes on the $62K. This is a bit painful, but I also know that those investments will pay us $6,564 in dividends each year as long as we own them based on the current dividends being paid. In the next five years that means over $33K will be tax-free income.

The $33K is nice, but it excludes the growth in the value of those investments and the dollars I can earn in my ROTH IRA trading covered call options. This makes the ROTH conversion a very attractive strategy for the long-term investor.

Does The Rule of 72 Always Work?

There are limits to the effectiveness of this rule. See the limitations in the Investopedia link. The limitations are worth knowing, but they aren’t a reason to avoid using the rule.

In Real Retirement Life

The number 72 is an important number. Like a farmer, you should think about what you are planting in your investment portfolio. If you buy “safe” investments like bonds, don’t expect to have significant growth over time.

RECOMMENDATION

The book of Proverbs offers sound advice: You need to pay attention to what you buy for your investment mix. Proverbs 27:23-24 says, “Know well the condition of your flocks, and give attention to your herds, for riches do not last forever; and does a crown endure to all generations?”

Don’t get so caught up in “doubling” your money without thinking about why you are doing it. Someday someone else will own your fields and crops. Your flocks and herds won’t matter any more because you won’t need them. However, those you love can benefit from your wise stewardship of those assets.

Next Time – We will continue looking at the seven Investing Rules: 3, 4, 5, 10, 22, 72, and 100. The rule that remains is the “100.”

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