The Rule of 72: Why Time is Your Money’s Best Friend

Want to know how long it takes your money to double? There’s a simple concept called the Rule of 72.

Here’s how it works: Divide 72 by your expected annual return, and you’ll get the approximate number of years it takes for your investment to double.

Earning 6% annually? Your money doubles in about 12 years (72 ÷ 6 = 12). Getting an 8% return?  You can expect it to take roughly 9 years to double (72 ÷ 8 = 9).

Why This Matters

The Rule of 72 isn’t just a neat math trick—it reveals one of the most powerful forces in personal finance: compound interest. Your money doesn’t just grow; it grows on its growth.

Consider this: $10,000 invested at 8% becomes $20,000 in 9 years. But here’s where it gets interesting—that $20,000 becomes $40,000 in another 9 years, then $80,000 nine years after that. Same annual return, but the dollar gains keep accelerating.

This principle shows why starting early matters so much. A 25-year-old investing $5,000 annually at 7% will accumulate significantly more by retirement than someone who starts at 35—even if the later starter contributes more total dollars. Those extra years give compound interest more time to work its magic.

How Does One Account for Uneven Returns Year over Year?

This is where the Rule of 72 shows its limitations in real-world investing.

The Rule of 72 uses your average annual return over time, not year-by-year performance. So, if you average 8% over a decade, your money should roughly double in 9 years – even though you might have earned 15% one year, lost 5% one year, gained 12% the next, and so on.

What Actually Happens

Markets don’t deliver smooth, predictable returns. Your account balance will zigzag as markets fluctuate. Some years you’ll be ahead of the Rule of 72’s projection; other years you’ll be behind. Over the long haul, if your compound annual growth rate (CAGR) averages out to 8%, you’ll end up in the ballpark of doubling in 9 years – just not in a straight line.

Why It Still Works

The key is that compound interest keeps working regardless of the sequence. Whether you earn 10%, then 6%, then 8%, or any other combination that averages around 8%, the compounding effect over time produces similar results.

The Real Takeaway

The Rule of 72 isn’t a precise calculator – it’s a conceptual tool that illustrates the power of time and compounding. The exact timing of when your money doubles will vary based on market volatility, but the underlying principle remains true: consistent investing at reasonable returns, given enough time, leads to exponential growth.

That’s why financial advisors focus on long-term average returns rather than year-to-year performance.

The Bottom Line

The Rule of 72 reminds us that building wealth isn’t about getting rich quick—it’s about giving your money time to grow. Even modest returns become substantial when you combine patience with consistency.

What about the “ Lost Decade” with No Real Returns?

You’re absolutely right – and this is a critical reality check on what I just said.

The “Lost Decade” of 2000-2009 saw the S&P 500 deliver essentially zero returns (or slightly negative, depending on exact dates). Investors sat through the dot-com crash and the 2008 financial crisis, and a decade later had nothing to show for it.

So What Happened to Compound Interest?

It didn’t disappear – it just went into reverse during the downturns, then had to spend years climbing back to even. The Rule of 72 assumes positive returns. When you’re losing money or treading water, time alone doesn’t help you.

This exposes an important limitation: the Rule of 72 works beautifully over periods with positive average returns, but it can’t predict when those periods will occur. Someone who invested a lump sum in 2000 learned this the hard way.

The Harder Truth

Time plus reasonable returns equal compound growth. But time alone guarantees nothing. Market timing matters more than we’d like to admit, and unlucky timing (like retiring right as your portfolio tanks) can derail even the best plans.

This is why diversification, regular contributions (dollar-cost averaging through the rough patches), and having enough time to weather multiple decades – not just one – become so important. The Lost Decade is a sobering reminder that “just invest and wait” isn’t always enough.  Whether you’re evaluating investment options or deciding whether to delay saving for another year, remember: time is the secret ingredient that turns good returns into great outcomes.

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Mosaic FI, LLC is a State of Illinois registered investment adviser. The opinions expressed herein are those of the firm and are subject to change without notice due to changes in the market or economic conditions and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of Jenifer Aronson and Leslie Meisner, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes November 12, 2025.

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