Wouldn’t it be nice if you could have double the amount of money that you do now? For many people, this feels like an imaginary possibility. Or something that could only happen if they somehow landed a massive bonus at work or skipped that big-time vacation that they’ve been saving for several years.

The reality is that doubling your money isn’t as impossible as you might think. Unfortunately, most people ignore investing because they don’t know the power of compounding interest. This can leave them pretty far behind, financially speaking — especially when it comes to retirement planning. With inflation and other factors, you’ll likely need a ton of money for a comfortable retirement, which makes working with a quality financial advisor an absolute must.

“Many people might shy away from investing because they just have so much difficulty fathoming that the money that they put into their investments could in fact, double,” says Leonard Kim of AdvisorCheck. “However, there is a formula that outlines the exact timeframe of when your money will double, and it’s based off of a simple calculation,” Leonard continued. 

Don’t believe me that your money can double? The “Rule of 72” proves that you can do exactly that with your investments thanks to the power of compounding interest. Better yet, this simple formula will even help you find out just how long it will take for your invested money to double.

Let’s take a look …

First Things First: Understanding Compound Interest

To understand why the Rule of 72 matters when trying to double your money, we first need to start with compound interest and why it is so important for your overall financial picture.

As Kathleen Elkins writes for CNBC, “Compound interest makes a sum of money grow at a faster rate than simple interest, because in addition to earning returns on the money you invest, you also earn returns on those returns at the end of every compounding period, which could be daily, monthly, quarterly or annually. That’s why compound interest causes your wealth grow faster. It’s also why you don’t have to put away as much money to reach your goals.”

In other words, let’s say you invest $100 into an account with an 8% yearly rate of return and annual compounding period. At the end of the year (or compounding period), you’ll now have $108. When the new compounding period starts, you’re not just earning interest on your original $100. You’ll also be earning interest on those additional eight dollars that you gained through interest. So in year two, instead of earning $8 in interest, you’ll earn $8.64.

Sure, in this example, an extra 64 cents doesn’t seem like much — but that’s because we’re talking about a very small investment. And remember, in year three, you’ll then be earning interest on a total of $116.64, which means $9.33 in interest earnings. As the amount in your account grows, so will the amount of money you can gain through compounding interest.

This is why financial advisors work to help their clients start investing as early as possible — even if it’s just a small amount. In the CNBC article quoted earlier, the author gives three examples of people who invest $250 per month with an 8% annual return on investment. The only difference is the age at which the people started investing.

The results: someone who starts investing at age 25 would have $878,570 by the time they are 65 years old. If they waited until age 35 to start investing, they’d only have $375,073 by age 65. And someone who waited until age 45 would only accumulate $148,236.

Compound interest means you don’t just have the potential to double your money — you can make it grow well beyond that. But while knowing the power of compound interest is important, having clear goals to guide your investing strategy is important for you and your financial advisor. This is where the Rule of 72 comes in.

Breaking Down the Rule of 72

The Rule of 72 is actually a very old mathematical principal, first described by Luca Pacioli in his 1494 (yes, 1494) book “Summa de Arithmetica.” It is actually believed to be potentially even older than that …

In its original form, the Rule of 72 wasn’t closely tied to investing. Instead, it was (and still is) used as a way to predict exponential growth in a wide variety of areas, from weight gain to population growth. However, because of its ability to showcase the power of compound interest in investing, it has also been adopted as a basic piece of financial education that advisors use to encourage their clients to begin saving for retirement as early as possible.

Basically, in the finance world, the Rule of 72 takes the number 72 and divides it by the annual rate of return for that investment to determine how long it would take for your money to double. Keep in mind that this assumes a fixed rate of return that stays the same each year.

So, if you expected your investment to grow by 7% each year, you would take 72 divided by 7 (72/7), which gives you a result of 10.28. In other words, it would take 10.28 years for your investment to double if you got a 7% rate of return each year. If you invested $100 today with that fixed rate of return, you’d have $200 in just a little more than 10 years.

Alternatively, you could use the Rule of 72 when trying to figure out the rate of return you would need to double your investment after a set amount of time. For example, let’s say you wanted to double your investment after just five years. To calculate this, you would divide 72 by how many years you want it to take to double your investment (5). 72 divided by 5 is 14.4 — in other words, you’d have to have an annual rate of return of 14.4% to double your investment in five years.

Regardless of what your goal might be for doubling your money, the Rule of 72 is a good way to understand either the rate of return or the number of years you’d need to keep your money in an investment account for it to double.

These goals are a good starting point for when you are working with a financial advisor, since the actions they take on your behalf factor in things like your goals and risk tolerance. Meeting with a financial advisor is the necessary next step once you’ve identified a saving/investment goal using the Rule of 72.

How an Advisor Applies These Principles to Savings and Investments

While the Rule of 72 is a helpful starting point, it isn’t 100% accurate — especially when you get into higher rates of return. Because of this, many investors instead use what is called the Rule of 69.3, which can be used to show how long it will take to double your investment with continually compounding interest.

This means a little more complicated math, but it’s actually good news for your investments, because it means that your money can grow faster than the Rule of 72 might show.

For example, let’s look at our example of a 7% rate of return. Take 69.3 and divide by 7, and you get 9.9 years to double your investment — shaving off several months from the calculated 10.28 years in the Rule of 72. Similarly, if you wanted to double your investment after five years, take 69.3 and divide by 5, and you get 13.86. This means you wouldn’t need to have as high of a rate of return to double your investment in five years as the Rule of 72 might lead you to believe.

All of this math stuff can undeniably get a little confusing, which is why working with a financial advisor can be so helpful. An advisor can break things down even further for you, accounting for factors like inflation and variations in the market to give you a complete picture of what your investments can look like with the help of compounding interest.

Get the Help You Need with a Financial Advisor

Even after breaking down the Rule of 72, investing can be understandably intimidating. After all, the market goes up and down all the time. The formula used for the Rule of 72 assumes you’re getting a fixed annual interest rate, when in reality, your interest will likely vary from year to year based on how your investments go — that’s a lot of math.

Still, the Rule of 72 is a valuable starting point. If nothing else, it illustrates just how much your investments can grow over time thanks to the power of compounding interest.

The best way to take advantage of compounding interest and the Rule of 72, of course, is to speak with a qualified financial advisor who can help you make sound investment decisions based on your current financial picture and goals. Wise investments can maximize your rate of return, allowing you to double your money that much sooner.

And with AdvisorCheck, it’s never been easier to find the right financial advisor for your needs. After you sign up for a free membership, you’ll have access to our exclusive Advisor Search, which collects a wide range of information about advisors from across the country. With detailed breakdowns of their disclosures, experience and even information on client ratios and assets, you can find an advisor who will help you maximize your investing potential.

Written by Lucas Miller, Entrepreneur Magazine contributor

Fact checked by Billy Quirk

Reviewed by KJ Kim

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The information provided in this article was written by the research and analysis team at AdvisorCheck.com to help all consumers in their financial journeys, by providing the resources and the insights to help improve one’s financial health, make it through recessionary and inflationary periods of time, and save their earnings to use them towards building a secure financial future. 

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