Quadruple Double

We’re all familiar with the word “double.”

• In the military, soldiers march in double time.

• In baseball, a two-base hit is a double, and a pitcher’s best friend is a double play.

• We sometimes see double.

• Spies lead double lives.

• Hotels offer double rooms.

• We play doubles with a partner in tennis and pickleball.

• When we’re in a hurry, we get things done on the double.

  
  

But are we familiar with how long it takes to double our investment money?

There is a very simple formula to calculate this.  It’s known as the Rule of 72, and it works like this:

• 72 divided by the annual rate of return = number of years to double your money

  
  

For example, if your investment earns an average of 6% per year, divide 6 into 72.  The answer (12) is the number of years it will take for your investment to double.  If you have $300,000 now, it will be $600,000 in 12 years.

You could also work the formula backwards to figure out what rate of return you’d need in order to reach a specific dollar amount in a specific number of years.  In this case, start with a goal (say, $600,000 in 12 years).  Divide 72 by the number of years to find out the rate of return you’ll need.

The formula is:  72 divided by 12 = 6% rate of return to double the money you have today.

Of course, this is a rough and simple estimate, and it does not take into account taxes, fees, additional contributions, any withdrawals, and the effects of inflation on the final dollar amount.  It also assumes a constant rate of return, which we know from Don’t Get Mad . . . Get Inve$ted! is not realistic.  Rates of return fluctuate, sometimes greatly, from year to year.  Nevertheless, this is a fun exercise and a useful tool to approximate the time and rate of return needed to double your investment money.

Here are a few examples:

• At a 5% rate of return, money will double in a little more than 14 years.

• At 7%, which is the “sweet spot” we talk about a lot in the Don’t Get Mad . . . Get Inve$ted!  book, it will take a little more than 10 years.

• If you’re fortunate to have a 9% return on investments, then your money will double in 8 years.

  
  

Here’s the beauty of this:  the money doubles and doubles and doubles (assuming it’s left alone with no withdrawals).

Let’s say, at Age 30, you have $50,000 earning a 7% average annual return, and you don’t add or subtract to the balance.  We know that, at 7%, money will double every 10 years.  Therefore:

• At Age 40, you’ll have $100,000. 

• At Age 50, it will be $200,000.

• Age 60, it will be $400,000. 

• Age 70, it will be $800,000.

  
  

I think that’s known as a quadruple double!