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

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Five thumb rules

Posted by Muthu on February 1, 2015

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.

For the purpose of the first 4 rules, let us assume that your investment is in an equity fund earning an annualised return of 18%.

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 18% returns, it takes 4 years for your money to double (72/18).

Rule of 69: This is the more accurate version of the above rule. Divide 69 by the rate of return and then add 0.35 to it. So for 18% returns, it takes 4.18 years for the money to double (69/18+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 18% returns, it takes 6.33 years for your money to triple (114/18).

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

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).

Since we often speak about 18% returns; at this return:

for money to multiply by 2 times it takes 4 years

3 times- 6.6 years

4 times- 8 years

5 times- 9.72 years

6 times- 10.8 years

7 times- 11.75 years

8 times- 12.56 years

9 times- 13.27 years

10 times- 14 years

In our suggested holding period of 20 years; it becomes 27 times. See how compounding is back loaded. It takes 14 years to multiply capital by 10 times, where as adding another 6 years, multiply your capital by a whopping 27 times!

Assuming you hold an investment for 30 years, at 18% annualised return, the capital multiply by….., hold your breath, astonishing 143 times.

What 18% does to an investment? It makes it 5 times in 10 years, 27 times in 20 years and 143 times in 30 years.

The most important thumb rule of all is to remember the power of time and that compounding is back loaded.

Now go and try impressing your wife or boss (am I repeating myself!) with your new found expertise.

7 Responses to “Five thumb rules”

  1. dd said

    Looks very very encouraging….. Is it for our favourite S.I.P investing…. Or one time big amount investing only?

  2. Saptharishi Iyer said

    Thanks for your thougth provoking and incisive articles on eEquity investments which as you rightly pointed out are the least understood in our country. Today’s thumb rules will be very useful for wealth planning and also for providing an idea about the power of compounding. You are a modern day siddhar in this kaliyuga inspiring people to achieve financial independence

  3. ratnakumar72 said

    excellent information….

  4. bvmallikarjunrao said

    very useful information. it show what power of compounding can do in case of investment in equity mutual funds.

  5. KR said

    Hi Muthu – I am super impressed by your articles and this has changed my perspetive in MF investments. Can you share your personal email id where I can ask some financial queries and take my investments in the right direction. Thanks.

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