By Priyanka Sambhav
Whenever we invest money, the first question that we want to know is – when will my money double? Isn’t that every investor’s dream? So instead of someone telling you a random number of years, you can do your quick math with a simple investment formula which is called the ‘Rule of 72.’ This rule tells you exactly how many years will it take for your money to double.
How do you apply the rule of 72?
It is a fundamental mathematical principle that gives a rough estimate of the time that your investment will take to double in value. It is applied only to compounding growth which means that it can be used on investment that earns compounding interest only.
Divide 72 by the compound interest that you are receiving on your investment, and you will get the number of years you need to stay put with that investment. It is a quick formula to have an estimate of the growth of the investment.
The formula is 72/rate of interest = Number of years
How to achieve your goals?
Let’s say you are investing Rs 10000 at 9.2% rate of interest. So to find the answer apply the formula –
72/9.2 = 7.8
It would take a little less than eight years for Rs 10,000 to reach the value of Rs 20,000. So this calculation gives you an idea of how long should be your investment to double your earning. Now with this estimate at hand, you can fix a goal and evaluate it with the rate of return.
You can also determine the rate of interest on which you will receive the desired results. Let’s say 15 years from now, you want an amount for your child’s higher education. So 72/15= 4.8, which means you need to make an investment which is giving you a return of 4.8% to achieve your goal.
Apply this on a shorter goal now if you wish your money to double in 5 years-
72/5= 14.4
So you need to invest in assets that give you an annualized return of 14.4%.
This may not be 100% accurate but gives you a fair idea of time and interest at which you should be investing to achieve the dream of doubling your money.
Want a triple return or even better quadruple return?
Why just doubling what if you want your money to triple? Then apply the rule of 114. You have to divide 114 by the interest rate to know how many years will it take for your money to triple. And if this is not enough then the rule of 144 will tell you the number of years in which your money will quadruple. For instance, you have invested Rs 40,000 at 12% interest, apply the rule of 144, and you will find out that it will take 12 years for it to become Rs 160000.
Apply these thumb rule of investing and become an informed investor.
