As per rule of 72, if S&P interest rate is 10%, money should double in 7.2 years.

But there are other websites which show different numbers, such as this one says 9.2 years.

I understand inflation has a role to play in this. But I am trying to compare S&P against other investment options such as real estate for example, so I am not interested in factors like inflation since they will be constant across these options.

So if I simply buy a S&P ETF, every 'how many years' can I expect it to double (on an average)?


Edit: I plan to put away the money for long term and forget about it (reinvesting dividends and any other returns there might be). In this scenario what would be the 'average rate of return'.

  • 3
    What you get from the S&P isn't interest, it's returns - growth in value plus dividends. It is not predictable. In this century, annual returns varied from a high of 32% to a low of 37%, with 5 of the years having negative returns. (So statistically, if you invest in the S&P 500 on January 1, there's about a 1 in 4 chance that your investment will be worth less on December 31. slickcharts.com/sp500/returns
    – jamesqf
    Nov 1 at 2:01
  • @jamesqf I read that as "worthless" and for a few seconds started my scathing rebuttal. But it pays off to read again. I do recommend avoiding the combination of "worth" and "less" though =P Nov 1 at 12:18
  • 1
    @Stian Yttervik: Yes, spaces can be important :-) And I see I have a typo: the low return should be MINUS 37%, of course.
    – jamesqf
    Nov 1 at 16:54
  • While that's true for the past 20 years, it's not at all accurate to say that you have a 1-in-4 chance of a decrease in value for any given year in the future.
    – chepner
    Nov 1 at 18:50
  • @chepner: Of course. See the disclaimer on the prospectus: "Past performance is no guarantee of future results" :-)
    – jamesqf
    Nov 2 at 2:46

If you want to double your money on a clock buy bonds

As your links so, the stock market doesn't double predictably. Any calculation you make will be a guestimate on your part. What you're actually saying is "Doubling in bonds is too slow - I want to double my money faster without adding risk" - which is impossible.

In order to have a chance to grow money faster, you must take on greater risks. This is a perfect example of how "low risk, high reward" doesn't exists

EDIT to address comments

Because there is not an answer. The stock market is volatile. Sometimes it take 3 years, sometimes 17 or more. Anyone saying otherwise is selling something.

But WHY! Because there is a market when you can predict when your money will double - the bond market. The returns are lower, but it's predictable. If you want to be able to predict what will happen to your money you have to take very little risk.

  • 1
    There's nothing in the question which indicates that the asker wants to get higher returns without adding risk. They asked what the average doubling time is, and you haven't answered that question. Nov 1 at 16:08
  • @TannerSwett - the links in the OP already answer that - it's unpredictable. Bond markets are part of the answer to this since you can say "I know my money will double in bonds." It'll just potentially take longer. Nov 1 at 19:23
  • 1
    It's unpredictable, but to a certain degree, it's predictably unpredictable. If you look at the S&P 500's historical returns since its inception, then what you see is, at worst, a reasonable guess for the expected value of its future returns. Nov 1 at 20:16

The rule of 72 is a rough approximation, some people also use 69.3 but that also is approximate. These approximations are good enough for most purposes. One of your sources uses a 10% average return, and the other uses actual historical doubling time from a handful different milestone dates to calculate an average doubling time, so this is not based on average returns. Which is more meaningful/useful is a matter of perspective, neither is 'right' they are just different metrics.

To calculate future value of a $1 investment with a fixed annual rate of return (r) over some number of years (n) you'd use:
fv = 1 x (1+r)^n

If you want to calculate when it is doubled you'd instead need to use a future value of 2 and solve for n:
2 = 1 x (1+r)^n

n = ln(2)/ln(1+r)

Average rate of return for SP500 since 1928 seems to be 7.93%, so:

n = ln(2)/ln(1+.0793)
n = ln(2)/ln(1.0793)
n = 0.69314/0.076312
n = 9.083

The rule of 72 would get you 9.079 years and rule of 69.3 would get you 8.739 years.

Note this does not factor in dividends, no idea if accurate but I found this site with historical SP500 returns including dividends which shows an average of 11.65% which would bring doubling time down to 6.29 years.

It generally makes more sense to use average rate of return to compare your options than doubling period.

  • thanks for a meaningful answer while others were missing the forest for the trees. As you suggested in the answer, its hard to know which site is accurate, and this question was mainly to ask if anyone knows the correct numbers.
    – Gadam
    Nov 2 at 3:13
  • @Gadam I think both approaches have merit and neither is necessarily wrong. Many would suggest going back to 1928 is not meaningful and might choose to calculate avg historic returns from a more recent time period as I suspect is the case with the first link. The site that uses the milestone dates based on SP500 doubling is drawing on fewer data points and also starting at 1928. Any assessment will have some weaknesses, just have to choose which factors you value most.
    – Hart CO
    Nov 2 at 4:25
  • @Gadam: This may be "meaningful", but it's also wrong. The rate of return is not a constant. You might try writing a small program. Invest a given amount, starting at each year of this century, and compute the results after N years using the rate for each year. You'll get a different result for each year.
    – jamesqf
    Nov 2 at 16:55
  • 1
    @jamesqf How is this wrong? I don't claim rates of return are constant, I claim that if you wanted to calculate a doubling period based on a fixed annual rate of return (ie average historic returns), this is how you'd do it.
    – Hart CO
    Nov 2 at 18:36
  • 1
    @jamesqf We use historical averages in so many contexts, I don't understand the objection. No assumptions being made.
    – Hart CO
    Nov 3 at 4:25

In the question you include this line:

As per rule of 72, if S&P interest rate is 10%, money should double in 7.2 years.

You link to this article: https://www.nerdwallet.com/article/investing/average-stock-market-return.

At no point do they include the word interest. They do include the phrase:

The historical average stock market return is 10%

The stock market doesn't involve interest. If you buy shares of a stock mutual fund, or a stock ETF that follows the S&P 500 index via taxable account, or retirement account on average you can expect the value of the investment to go up by 10% a year. That doesn't mean that you can sell 3 months later and have gained 2.5% or sell 7.2 years later and get double the money. The growth isn't predictable, or steady. You can move sideways or backwards during the time you own it.

When seeing the 10% average you have to know did they factor in inflation, did they factor in taxes, did they factor in reinvesting dividends? These are valid concerns.

But I am trying to compare S&P against other investment options such as real estate for example, so I am not interested in factors like inflation since they will be constant across these options.

Real estate is also hard to predict. Depending on what you invest in, national or regional historic returns may be meaningless. Especially if you want to know, "will the value of my rental property go up next year".

  • I am talking about average rate of return, and ‘guesstimates’.
    – Gadam
    Nov 1 at 13:07
  • 3
    The S&P 500 doesn't give you interest. That is the fundamental answer. Nov 1 at 15:23

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.