Double Your Investment in 7 Years Using the Rule of 72

The Rule of 72 can help you determine how long it would take your investment in a large Canadian renewable independent power producer like TransAlta Renewables Inc. (TSX:RNW) to double in value.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

“Double your money” is a familiar phrase in the investing world. That is the goal of nearly all investors and the sales pitch of people presenting an investment option. Although doubling your investment is sometimes impossible, there’s a way to determine how long it would take for your investment to double.

Before investing in a high-paying dividend stock like Transalta Renewables (TSX:RNW), you can use the Rule of 72 to crunch the numbers. You need not be a finance wizard to come up with a rough estimate of the time it will take to reach your goal.

Simple math

The Rule of 72 is simple and straightforward. The first step is to set a fixed annual rate of return. You don’t even need the investment amount. You just divide 72 by the annual rate of return. This will give you the estimated number of years within which your investment could double.

Let’s assume the annual rate of return of your potential $10,000 investment is 10%. If you divide 72 by 10, you will get an answer of 7.2. This means it would take 7.2 years for your investment to grow to $20,000. And the amount would double every 7.2 years. So, if the rate is of return is 20%, it would take only 3.6 years for the $10,000 to double.

The Rule of 72 can also apply in reverse. Suppose you wanted to figure out the annual rate of return you’d need if you wanted to double your investment within a specified period. Use 72 again and divide it by the desired number of years. The quotient, or the answer, is the annual rate of return you would need.

Divide 72 by six, and you will get an answer of 12. Thus, your potential investment should deliver a 12% annual rate of return, if you want your $10,000 to double in six years.  You don’t need the investment amount in the Rule of 72, but always keep the annual rate of return fixed or constant.

Outstanding stock

TransAlta is a developer, owner, and operator of facilities to generate renewable power. As an investment option, the $3.47 billion company is an income generator. The stock’s current dividend yield is 6.83% with a payout ratio below 100%.

This independent power producer boasts of renewable power-generation facilities like wind, hydro, and gas. TransAlta has been creating stable cash flows for years, because its assets are fully contracted for the long term. There is recurring revenue for the company and consistent returns for investors.

The comparable EBITDA as of June 30, 2019, rose by 9% to $227 million. This indicates that TransAlta is on track to deliver positive growth this year. Under the growth plan, the company will be adding more renewable energy projects.

If you’re considering investing $10,000 in TransAlta, let us apply the Rule of 72 and discover that your investment will double in 10.5 years. That is assuming the company can maintain the 6.83% dividend yield.

Handy formula

The Rule of 72 will come in handy when you’re faced with an investment decision. You can use it to forecast the future value of a potential investment.

Should you invest $1,000 in Enbridge right now?

Before you buy stock in Enbridge, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Enbridge wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With Only $10,000

It doesn't have to be complicated or scary. You can turn any portfolio into a major gold mine.

Read more »

ways to boost income
Dividend Stocks

Passive Income: How to Invest Your TFSA Limit in 2025

This TFSA strategy can reduce risk and boost yield.

Read more »

coins jump into piggy bank
Dividend Stocks

Here’s the Average Canadian TFSA and RRSP at Age 25

Are you not meeting the average? Then check out this ETF that can bridge the gap.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

3 Canadian Multi-Sector Stocks to Buy and Hold for Built-In Diversification

Here are three of the best dividend-paying Canadian stocks with built-in diversification.

Read more »

grow money, wealth build
Dividend Stocks

Why I’d Allocate $15,000 to Canadian Stocks Now for Building Generational Wealth

With $15,000, a thoughtful allocation across small-, mid-, and large-cap Canadian stocks could offer the right blend of growth, income,…

Read more »

Caution, careful
Dividend Stocks

3 Major Red Flags the CRA Is Watching for All TFSA Holders

The CRA is watching, so make sure you're investing well and avoiding these problems.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 2 Top TSX Stocks With Decades of Dividend Growth

These stocks have great track records of delivering dividend growth in challenging economic conditions.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA: Invest $15,000 in This TSX Stock and Create $884 in Annual Passive Income

This TSX stock certainly has quite the long-term outlook -- one that could create passive income now and decades to…

Read more »