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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Five useful investing thumb rules

Posted by Muthu on February 16, 2011

Like mobile number portability, health insurance portability is also becoming effective July 1’st 2011. This means the accumulated ‘no claim bonuses’ and the waiting period undergone for pre-existing condition can be carried over to the new insurance company. Due to the proposed change, you may get competitive rates and better cover.

All along I was under the impression, only jewellery shop owners’ use ‘Akshaya Tritiya’ as bait for making people buy gold. Interestingly a mutual fund has also sent me a message today stating that when Pushya Nakshatra falls on Thursday, it is known as ‘Gurupushyamrut’ and is auspicious for buying gold and hence buy gold from them.

They also want people like us to download their gold sales campaign as ring tone. Height of pushing!

This is what is called as over selling. Blind aggression only makes people repulsive. Instead of positioning the product, they are appealing to the religious sentiment and greed of people. People believe that when they buy gold on auspicious day, it would multiply many folds.

Whether it is a local trader or a ‘well knowledgeable’ mutual fund house, ultimately to sell their wares they do not mind appealing to greed or religious sentiments of the people.

‘Akshaya Tritiya’ or ‘Gurupushyamrut’ is definitely auspicious- for the sellers.

There are lot of investing thumb rules. Many are downrightly stupid. I share below 5 rules which you’ll find it useful. Not only that you may use it to impress your near and dear too! They would be happy to see a personal financial expert in you.

Out of the 5 rules given below, four I knew already. One I came to know from the recent issue of ET Wealth.

For the purpose of the first 4 rules, let us assume that your investment is in PPF (Public Provident Fund) earning 8% per annum.

Rule of 72: Divide 72 by the rate of return. The resultant answer is the number of years it takes for your money to double. So for 8% returns, it takes 9 years for your money to double (72/8).

Rule of 69: This is the more accurate version of the above rule. Divide 69 by the rate of the  return and then add 0.35 to it. So for 8% returns, it takes 8.97 years for the money to double (69/8+0.35).

Rule of 114: This rule tells how long it takes your money to triple. Divide 114 by the rate of return. So for 8% returns, it takes 14.25 years for your money to triple (114/8).

Rule of 144: This rule tells you that how long it takes for your money to quadruple (i.e.) become 4 times. So for 8% returns, it takes 18 years for your money to quadruple (144/8).

Rule of 70: This is an interesting rule which show the effect of inflation on your money. Divide 70 by the inflation rate to know how long it would take for your money reduced to half of its today’s value. So for 6% inflation, your money would become half its value in 11.66 years (70/6). Now you may know why all of us are alarmed at present high levels of inflation.

If you take the Sensex annualized returns of around 18% during last 30 years, it would take 4 years for the money to double, 6.33 years for the money to triple and 8 years for the money to quadruple. The growth would not have been even. Nevertheless in the longer run, these returns would have reflected on the investments.

That is why equities are must for your wealth to grow and beat the inflation. Given the context of our country’s growth and positioning in the global economy, I’m convinced that no asset class would be able to deliver us what equities can.

Invest regularly and invest for long term.

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