The rule of 72 is only an approximation that is accurate for a range of interest rate (from 6% to 10%). Outside that range the error will vary from 2.4% to 14.0%.
However, the Rule of 72 is based on a few assumptions that may not always be accurate, such as a constant rate of return and compounding period. It also does not take into account taxes, inflation, and other factors that may impact investment returns.
The Rule of 72 is a simple way to estimate how long it will take your investments to double by dividing 72 by your expected annual return rate. Higher-risk investments like stocks have historically doubled money faster (around seven years) compared with lower-risk options like bonds (around 12 years).
The rule is this: 72 divided by the interest rate number equals the number of years for the investment to double in size. For example, if the interest rate is 12%, you would divide 72 by 12 to get 6. This means that the investment will take about 6 years to double with a 12% fixed annual interest rate.
Final answer:
It will take approximately 15.27 years to increase the $2,200 investment to $10,000 at an annual interest rate of 6.5%.
However, the more precise method to calculate the exact number of years is using the exact doubling time which is 7.27 years, based on compound interest. Therefore, the correct answer to the question of how long it will take to double a $2,000 investement at 10% interest is A. 7.27 years.
One of those tools is known as the Rule 72. For example, let's say you have saved $50,000 and your 401(k) holdings historically has a rate of return of 8%. 72 divided by 8 equals 9 years until your investment is estimated to double to $100,000.
Based on total return, the average stock market return is about 13% over the past 10 years. Since 1965, the S&P 500 has provided annualized total returns of 10.2% through 2023, according to data compiled by Berkshire Hathaway (BRKB).
Einstein also said that “If people really understood the Rule of 72 they would never put their money in banks.” Suppose that a 10-year-old has $500 to invest. She puts it in her savings account that has a 1.75% annual interest rate.
The classic approach to doubling your money is investing in a diversified portfolio of stocks and bonds, which is likely the best option for most investors. Investing to double your money can be done safely over several years, but there's a greater risk of losing most or all your money when you're impatient.
Before buying an item, figure out how many times you'll use it. If it breaks down to $1 or less per use, I give myself the green light to buy it.
To answer the question of how to double my money quickly, simply invest in a portfolio of investment options like ULIPs, mutual funds, stocks, real estate, corporate bonds, Gold ETFs, National Savings Certificate, and tax-free bonds, to name a few.
Dividing 72 by the annual rate of return gives investors an estimate of how many years it will take for the initial investment to duplicate. It is a reasonably accurate estimate, especially at low interest rates.
The Bottom Line. Safe assets such as U.S. Treasury securities, high-yield savings accounts, money market funds, and certain types of bonds and annuities offer a lower risk investment option for those prioritizing capital preservation and steady, albeit generally lower, returns.
According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside. For example, if you aim to take out $2,000 per month, you'll need to set aside $480,000.
Try Flipping Things
Another way to double your $2,000 in 24 hours is by flipping items. This method involves buying items at a lower price and selling them for a profit. You can start by looking for items that are in high demand or have a high resale value. One popular option is to start a retail arbitrage business.
To use the rule of 72, divide 72 by the fixed rate of return to get the rough number of years it will take for your initial investment to double. You would need to earn 10% per year to double your money in a little over seven years.
This rule is based on the principle of compounding interest and suggests that if you invest in a mutual fund with a 12 per cent annual return, your investment will double approximately every 8 years. After the first doubling, it will double again in the next 4 years, and then a final time in the subsequent 3 years.
The theme of the rule is to save your first crore in 7 years, then slash the time to 3 years for the second crore and just 2 years for the third! Setting an initial target of Rs 1 crore is a strategic move for several reasons.
The magic of compound interest
Any saver can turn an initial deposit of $5000 into $416,325 (before fees) over 20 years by earning an annual return of 10 per cent and investing an additional $500 each month into their investment kitty.