What Is the 7-Year Investment Rule? (2024)

FAQs

What Is the 7-Year Investment Rule? ›

Divide 72 by your average expected annual return

The 7-Year Rule for investing is a guideline suggesting that an investment can potentially grow significantly over a period of 7 years. This rule is based on the historical performance of investments and the principle of compound interest.

In reality, a 10% investment will take 7.3 years to double (1.10^7.3 = 2). The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double.

How the Rule Works. To use the Rule of 72, divide the number 72 by an investment's expected annual return. The result is the number of years it will take, roughly, to double your money.

In other words, the 7/10 rule is a time and interest-based investment rule. For example, you invest ₹100 at 10%, it will take 7 years for it to touch ₹200. Here, 7 is the time and 10% is the interest rate.

All you do is divide 72 by the fixed rate of return to get the 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.

Investing $1,000 a month for 20 years would leave you with around $687,306. The specific amount you end up with depends on your returns -- the S&P 500 has averaged 10% returns over the last 50 years. The more you invest (and the earlier), the more you can take advantage of compound growth.

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.

According to his math, since 1949 S&P 500 investments have doubled ten times, or an average of about seven years each time. In some cases, like 1952 to 1955 or 1995 to 1998, the value of the investment doubled in only three years.

While quite a few personal finance pundits have suggested that a stock investor can expect a 12% annual return, when you incorporate the impact of volatility and inflation, 7% is a more accurate historical estimate for an aggressive investor (someone primarily invested in stocks), and 5% would be more appropriate for ...

Why do investments double every 7 years? ›

Given a 10% annual rate of return, how long will it take for your money to double? Take 72 and divide it by 10 and you get 7.2. This means, at a 10% fixed annual rate of return, your money doubles every 7 years.

By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.

“The first rule of investment is don't lose. The second rule of investment is don't forget the first rule.” Buffett famously said the above in a television interview.

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.

In conclusion, the 4 golden rules of investment - start early, watch out for costs, stick to your goals, and diversify - collectively play a crucial role in building a resilient and rewarding investment portfolio. By starting early, investors can benefit from compounding returns over time.

It will take a bit over 10 years to double your money at 7% APR. So 72 / 7 = 10.29 years to double the investment.

In short, the average stock market return since the S&P 500's inception in 1926 through 2018 is approximately 10-11%. When adjusted for inflation, it's closer to about 7%.

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.

Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.