Most people can appreciate a good shortcut, and in the world of investing, few are as beloved as the Rule of 72.
The Rule of 72 is a simple mental math trick that tells you roughly how long it will take for your money to double. Just divide the number 72 by your expected annual rate of return, and voila! You have a quick, easy estimate.
For example, if your portfolio is growing at 8% per year, the Rule of 72 says your money should double in about nine years, or 72 divided by 8.
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It’s a neat tool for dinner party calculations, but ultimately, the Rule of 72 is simply an estimate — and not the most accurate of estimates, at that. In the real world of investing, where your financial future depends on more than just a single number, you might need something a little more reliable.
Whether you’re planning for retirement, saving for a down payment, or just curious about your long-term wealth, there are more precise and powerful tools at your disposal.
Here are some of the best alternatives to the Rule of 72, listed in order of complexity, which also translates to accuracy.
The simple alternatives: variations of the Rule of 72
The Rule of 72 works best for rates of return between 6% and 10%. Outside of this range, its estimates become less accurate.
One way to account for this is to adjust your numerator by adding or subtracting one for every 3 percentage points your rate of return differs from 8%. For example, if your rate of return is 5%, use 71 instead of 72 in your calculation.
For the most accurate results, though, you’d want to use 69.3 as your numerator. The number 69.3 is based on the natural logarithm of 2, making it the most mathematically precise version of the Rule of 72.
It’s also designed for continuous compounding rather than the annual compounding of the Rule of 72. While most investments don’t compound continuously — interest and dividends are often paid monthly or quarterly, for example — it represents the fastest theoretical pace an investment can double.
You can think of it as the ultimate speed limit for your money’s growth at the given rate of return.
The drawback to the Rule of 69.3 is that you aren’t likely to be able to perform the mental calculations on a cocktail napkin at your next dinner party.
It also relies on a fixed annual rate of return and a single contribution. Most investors contribute regularly to their portfolios and earn a variable rate of return.
The next step up: time value of money calculators
If you want a more precise answer without the complexity of a spreadsheet, time value of money (TVM) calculators are your best friends.
These online tools can show you exactly how your money will grow over time, accounting for the regular contributions you make — a critical component of building wealth — and sometimes even variations in your rate of return.
One good example is the free Compound Interest Calculator available on Investor.gov, a website run by the U.S. Securities and Exchange Commission (SEC).
The calculator allows you to input monthly contribution amounts, choose a variance in your rate of return and pick your compounding speed, from annually down to daily.
So instead of just seeing how a lump sum will grow, you can see how your consistent, disciplined saving habits will supercharge your wealth. You can run “what if” scenarios to see the impact of saving a little more each month or investing for a few extra years.
That said, these calculators still don’t account for all of the real-world variables your investments are likely to face, such as capital gains taxes and broker fees.
For the advanced investor: Monte Carlo simulations
Sometimes the real question you want to answer is if you will have enough money to retire. This is where Monte Carlo simulations come into play.
Monte Carlo simulations take the unpredictable nature of investing into account by running hundreds or even thousands of different scenarios.
So instead of asking, “How much money will I have if my return is 8% every year?”, the Monte Carlo simulation asks, “What is the probability that I will reach my financial goal based on thousands of potential market scenarios?”
This makes it an “incredibly powerful modeling” tool that works particularly “well for distribution phase planning,” says John Jones, a certified financial planner and investment adviser representative at Heritage Financial.
You can run Monte Carlo simulations using spreadsheet software such as Excel or Google Sheets, but an easier approach is to use an online calculator.
The downside to this approach is that it doesn’t provide as simple of an answer as time value calculators or the Rule of 72, and the results can be hard to interpret without guidance from an expert, Jones says.
The holistic view: financial planning software
For the most holistic view of your financial future, the ultimate tool is financial planning software. These aren’t just calculators; they’re comprehensive platforms that can integrate all of your resources and obligations to provide a more complete view of your financial situation.
They often use calculations such as compound interest formulas and Monte Carlo simulations. They can also account for taxes, inflation and fees.
“Most professional financial advisers and planners have these tools to provide very accurate results, if given all the correct inputs,” says John Gillet, CEO and founder of Gillet Agency. It also enables them to identify the optimal strategy for you.
“If you truly want to get accuracy and would like to see how the growth of your money plays into the greater dynamic of your retirement planning, you need a financial plan,” Gillet says. “A plan that’ll show the growth of your money, income flows now and in retirement, cost-of-living adjustments to Social Security, inflation, taxes and the exact rate of return your money needs to sustain your lifestyle for the long haul.”
In other words, you need the whole shebang, not just a quick math rule.
However, the drawback to this approach is that you’ll likely need to work with a financial planner to access these tools, and most planners charge for their service.
“Make sure to discuss these fees with complete transparency before signing an agreement,” Gillet says. “Remember, you always have some negotiating power. In the end, the adviser would value a client relationship. That’s how they make a living. That’s your leverage.”
