How fast can I grow my wealth? How long will it take for my money to be twice or thrice the amount? People are filled with many questions when it comes to investments and returns. Investing is nothing rocket science, it requires strict discipline. However, there are some fundamental rules of investment everyone must follow in order to yield desired results.
Rule of 72
Rule of 72 is a formula where we divide the number ’72’ with the interest rate offered by the investment instrument to get an idea how soon can you double your money with that particular investment. For eg., if an investment scheme promises a 10% annual rate of return, it will take approximately (72 /10) = 7.2 years to double the invested money.
Rule of 114
Rule of 114 is a formula to estimate how much time will it take to triple your wealth. Here you have to divide 114 by interest rate to get in how many years your money gets tripled. For eg., if an investment scheme promises a 10% annual rate of return, it will take approximately (114 /10) = 11.4 years to triple your money.
Rule of 144
After the Rule of 72 and 144, comes the rule of 144 which tells investors how much time their money or investment will quadruple (become four times its original value). For instance, if the interest rate is 10 per cent, Rs 10,000 becomes Rs 40,000 in 14 years. For eg, if we say the 10 per cent interest rate, it will take approximately (144/10)=14.4 years for the money to become four times its original value. This rule is basically for people who stay invested for a really long-term in order to see their money actually become four times.
100 minus your age rule
This method is used for asset allocation in the financial world. One just has to subtract their age from 100 to identify how much of your portfolio should be allocated to equities. For instance, if your age is 60, then the logic says you can invest 40% in equity.
Future Value (FV)
Future value (FV) is the value of a current asset in the future based on an assumed rate of growth. The future value (FV) is important to investors to estimate how much an investment made today will be worth in the future.
The formula for the Future Value (FV) of an investment earning compounding interest is:
FV=I×(1+R to the power T)
FV= Future Value
T=Number of years
The 50-20-30 Rule
The household budgeting is always a challenging task. The rule says about 50 per cent of your in hand salary should go towards living expenses. Another 20 per cent should be set aside for short term goals and emergency fund and you should be able to save at least 30 per cent of your take home salary.
The rule is very simple in practice. It asks you to set buckets for everything and operate within the permissible amount. 50% of the income goes to needs, 20% for wants and 30% to savings and investing.