As an investor, you would always want to know about the performance of your investments and how well they are growing. You would also be curious to know by when your investments would exponentially grow and double themselves. If you thought that this involved a series of technical processes involving stock market tracking, you are completely mistaken. The Rule of 72 is here! It is an easy formula which will tell you how soon your investments would double at a certain rate of interest. The formula, as you can see here, is quite easy to understand:
T =72/R, where
T = Time
R = Rate of interest and
72 is a random number that has been chosen for mentally calculating the values easily. Since it is divisible by many numbers, the value of 72 has been fixed as an arithmetical unit for this rule.
Application of this formula
If your rate of interest is 10%, and if you have an investment of 6.25lacs, you can apply this formula and come to a conclusion that it would take 7.2 years (72/10) for your investment to grow to 12.5lacs at the prevailing interest rate of 10%.
For subsequent doubling of investments, this value that we have derived at (7.2 years) needs to be added on to know how exponentially your investments would grow. The following picture will describe this formula in a simple and logical way:
The greatest legend in the investment world today, Warren Buffet, has always endorsed the Rule of 72 to all this protégés ever since 1956. Such is the power of this rule. Since this gives you a quick way of calculating your returns, you can plan properly and bring a good structure to your financial goals.
Benefits of this rule
You don’t have to deal with investment and financial jargons anymore. You don’t even have to follow technical indicators on the stock market to know if a particular product is worth investing in. All you have to do is to apply this quick mental formula of the Rule of 72 and come up with the number of years in which your investment is going to double itself. If you are comfortable with the time period that you have derived at, you can go ahead with your investment decisions; if you are not, you can opt out immediately. It is as simple as that.
You can easily plan for your retirements with the help of this formula as you will know how long you need to stay invested to get the returns that you wish to get. If you fail to realise the power of this rule, you will be left grappling for funds in your retired life. Therefore, as an investor, you have to do some research on this rule to get maximum use from it to double your investments so that you can plan your investments properly and eventually enjoy peace of mind post retirement.