Investing thumb rules – Rules of Compounding – Ambrulz’s Blog

Reading Time: 3 minutes

Original Source link | Follow Ambuj on Twitter | Subscribe to Ambuj’s Blog

Today let’s talk about very basic investing rules which any one can use to get the fair idea of how far your money will reach using compounding (8th wonder of world). Lets discuss one by one.

Cash Clipart Reimbursement - Money Grow Clipart PNG Image | Transparent PNG  Free Download on SeekPNG

Rule of 72: This rule tells you “how much time your money will double

The simple formula to find out is: –Divide 72 by rate of return, you will know in how many years your investment will double.

For example: If any one invest a sum of 50,000 in a instrument which gives annualized return of 8% then according to formula it would take

72/8 = 9 years, it would take 9 years to double the money.

Rule of 114: This rule tells you “how long will it take to triple your money

The simple formula to find out is: –Divide 114 by rate of return, you will know in how many years your investment will triple.

For example: If any one invest a sum of 50,000 in a instrument which gives annualized return of 8% then according to formula it would take

Also Read on FinMedium:  Is Shilpa Medicare a Cancer Giant - Important Notes from 2020 Annual Report

114/8 = 14.25 years, it would take 14.25 years to triple the money.

Rule of 144: Similarly this rule tells you “how long it will take to quadruple your money“.

The simple formula to find out is: –Divide 144 by rate of return, you will know in how many years your investment will quadruple.

For example: If any one invest a sum of 50,000 in a instrument which gives annualized return of 8% then according to formula it would take

144/8 = 18 years, it would take 18 years to quadruple the money.

Now all these rules belongs to magic of compounding and roughly derive the fair idea to make money double, triple and quadruple.

Another important rules which is very useful and missed during the financial planning session is “Rule of 70” which predict your future buying power with inflation.

Rule of 70: Divide 70 by current inflation rate to know how fast the value of your investments will get reduced to 50% of it’s current value.

Let’s say inflation rate is 7% then it would reduce the value of Rs. 70/-

Also Read on FinMedium:  Economic sudden stop | Value Investor India

70 / 7 = 10 years.

surprised !! This is an important rule to know and plan your financial accordingly, this rule is especially useful for retirement planning as this directly affect the set monthly income one plan to get after retirement, how ever the inflation rate is subjected to change every year and may not be constant.

Disclaimer: Though these rules are theoretical in nature, but gives fair idea for planning, I personally believe the discipline is the best way to achieve the best possible result.

Happy Investing 🙂



Original Source link | Follow Ambuj on Twitter | Subscribe to Ambuj’s Blog

Every Wednesday and Saturday, we send Info-Graphic and FinMedium Weekly Digest newsletters to our 25000+ Subscribers.

Join Them Now!


Ambuj Nema

Ambuj Nema

A Proud Indian | Not SEBI registered | Blogging about IPO's and Investment Psychology and Guidance
Please Share Now :)