Looking to double your money — A guide for you!
Let me get surprise you! To be a good investor looking for returns, it is not the advanced financial concepts that you require to double-up your money. Instead, to be able to be on the right track; all you would need is simple class-4, basic mathematics!
Confused much? Let me help!
Basic mathematics concepts like double-digit multiplication and division will help to assess how you can increase investments trifold. This can be done by applying two easy rules of thumb while calculating what an investing option will return.
These golden rules are the Rule of 72 and the Rule of 115.
The Rule of 72
Applying the Rule of 72 will tell you how rapidly you can double your investment. The Rule of 72 requires that you divide the number 72 by the interest rate that investment is grossing. The result you get is how long it will take for your invested principal to double.
For instance, if you have invested in an avenue giving a 9% interest rate, then the amount will double in 8 years (72 divided by 9 equals 8).
Or, if you have placed your money in a fund that is yielding a 4% interest rate, it will be doubled in 18 years (72 divided by 4 equals 18).
In case you have invested in a low return bond with a 2% interest rate, you will get double your investment amount in 36 years.
Please bear in mind that the Rule of 72 is just a rule of thumb, not a fixed concept. The Rule of 72 does not consider the realities of taxes, management fees, and transaction charges. It is a quick calculation to let investors know what they are getting themselves in for an investment option. For newbies that feel generous about rates, the Rule helps reinforce how powerful percentages can be.
An investor may feel lenient about 5 and 6% because of the 1% difference. However, there is a significant difference in the option of doubling your investment in 10 or 12 years.
The Rule of Thumb assumes that investments are compounded yearly. This means that the interest you earn is added to your investment amount, and the total is reinvested
The Rule of 115
The Rule of 115 is also a rule in which investors can assess how they can triple their investments. This Rule requires that you divide 115 by the interest rate you are earning on your investment.
For instance, if your investment is earning a 9% interest rate, it will triple in 12 years and eight months (115 divided by 9 equals 12.78).
If your investment is earning a 6% interest rate, it will triple in 19 years and two months (115 divided by 6 equals 12.17).
Basic Assumptions
1. Compound Interest
Both the Rules of 72 and 115 are designed for securities that offer compound interest rates to their investors. The more interest that an investment earns, the more it will multiply — also thanks to the power of compound interest. The more interest your money makes, the more your money will work for you.
2. Reinvesting the interest earned
Both rules assume that investors will reinvest their interest income. Finding out about this is pretty simple. If you are not getting checks or payments from your investments, the chances are that you have opted for reinvesting your interest.
