INVESTING THUMB RULES (PART 1 OF 5)
1. HOW FAST WILL YOUR MONEY GROW
· RULE OF 72
o This tells you in how much time your money will double.
o Divide 72 by the interest rate you are compounding your money with.
o You will arrive at the number of years it will take to double in value.
o If the interest rate is 9%, then your money will double in 72/9=8 years.
· RULE OF 114
o This tells you in how much time your money will triple.
o Divide 114 by the interest rate you are compounding your money with.
o You will arrive at the number of years it will take to triple in value.
o If the interest rate is 9%, then your money will triple in 114/9=13 years.
· RULE OF 144
o This tells you in how much time your money will quadruple.
o Divide 144 by the interest rate you are compounding your money with.
o You will arrive at the number of years it will take to quadruple in value.
o If the interest rate is 9%, then your money will quadruple in 144/9=16 years.
2. HOW FAST WILL YOUR CORPUS ERODE
· RULE OF 70
o This predicts your future buying power.
o Divide 70 by the current inflation rate to know how fast the value of your investment will get reduced to half its present value.
o You will arrive at the number of years it will take to half your investment.
o If the inflation rate is 7%, then your money will halve in 70/7=10 years.
o This is useful in deciding your monthly retirement withdrawals.
o Keep in mind that inflation rate varies from time to time.