Casual Finance Fridays: Double Your Money
Explaining the “Rule of 72”
Written By: Steven Higgins, Financial Advisor, Registered Principal
Welcome back to Casual Finance Friday!
Ever wonder how long it will take for your money to double? The Rule of 72 provides a quick estimate. Just divide 72 by your expected rate of return—the result is the number of years it will take for your investment to double.
For example, if your portfolio averages a 7.2% return, the math looks like this:
72 ÷ 7.2 = 10 years
So, at 7.2%, your money doubles roughly every 10 years.
Historically, the S&P 500, a benchmark for the 500 largest publicly traded U.S. companies, has delivered average annual returns of nearly 10% (with dividends reinvested) over most long-term periods of 10+ years. However, those returns come with volatility. Investors should expect:
- A 10% correction nearly every year
- A 20%+ drop roughly every three years
- Occasional major selloffs—In 2002, the market fell over 50%, in 2009, it dropped by over 55%, and in 2020, COVID-19 triggered a 34% decline in less than three weeks.
Despite the turbulence, history has shown that staying the course leads to success. Attempting to time the market often results in missing out on significant gains.
That said, a well-designed financial plan should rarely involve putting all assets into the stock market. Every plan should factor in liquidity needs, emergency funds, and income sources to ensure short-term financial security. Investing works over time—not every time—so having a diversified approach is key.
At Higgins & Schmidt Wealth Strategies, we provide concierge investment and financial planning services with a emphasis on tax efficiency. We take our role as stewards of our clients’ resources and legacy seriously and believe that honesty and transparency about market volatility and opportunity are essential to a successful partnership.
If we can be of assistance, please don’t hesitate to reach out. Happy Friday!
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Higgins & Schmidt Wealth Strategies, a registered investment advisor and separate entity from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA
