How fast can you double your money? 6 cardinal rules of good investment - Thumb rules for your financial queries (2024)

FAQs

How fast can you double your money? 6 cardinal rules of good investment - Thumb rules for your financial queries? ›

The rule can tell you how fast you can double your money. Divide 72 by the interest rate at which you are compounding your money, and you will arrive at the number of years it will take to double in value. For instance, you money will double in 3 years if you are compounding at 24 per cent (ie 72/24 = 3 years).

So, if the interest rate is 6%, you would divide 72 by 6 to get 12. This means that the investment will take about 12 years to double with a 6% fixed annual interest rate. This calculator flips the 72 rule and shows what interest rate you would need to double your investment in a set number of years.

All you do is divide 72 by the fixed rate of return to get the number of years it will take for your initial investment to double. For example, if your investment earns 6% per year on average, you would take 72 divided by 6 to determine that it will take 12 years for your money to double.

Thumb Rule #1: Rule of 72

The Rule of 72 is a simple formula that helps you estimate the time it takes for your investment to double. To use this rule, divide 72 by the expected rate of return on your investment.

We saw in the previous section that investing in the S&P 500 has historically allowed investors to double their money about every six or seven years. Your initial $1,000 investment will grow to $2,000 by year 7, $4,000 by year 14, and $6,000 by year 18.

Answer and Explanation:

The answer is: 12 years.

The rule of 8-4-3 when it comes to compounding indicates a style of investment that accelerates growth with time. Initially, a corpus doubles within 8 years through an average annual return of 12% subsequently another doubling happens for the same period after another 4 years following its initial setting up.

Putting the seven percent rule into action is simple: Calculate seven percent of your gross annual income. For example, seven percent of $50,000 is $3,500. Divide this amount by 12 to get your monthly savings target.

The so-called Rule of 42 is one example of a philosophy that focuses on a large distribution of holdings, calling for a portfolio to include at least 42 choices while owning only a small amount of most of those choices.

What is the 111 doubling rule? ›

The 1-1-1 Rule

Words of one syllable (1) ending in a single consonant (1) immediately preceded by a single vowel (1) double the consonant before a suffixal vowel (-ing, -ed) but not before a suffixal consonant (-tion).

Assuming long-term market returns stay more or less the same, the Rule of 72 tells us that you should be able to double your money every 7.2 years.

The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.

According to his math, since 1949 S&P 500 investments have doubled ten times, or an average of about seven years each time. In some cases, like 1952 to 1955 or 1995 to 1998, the value of the investment doubled in only three years.

There are two approaches you could take. The first is increasing the amount you invest monthly. Bumping up your monthly contributions to $200 would put you over the $1 million mark. The other option would be to try to exceed a 7% annual return with your investments.

If the index rises at its historical average of around 10%, you'd double your money in about 7.2 years (72/10 = 7.2). If you believed that the S&P 500 is more likely to return, say, 15% due to strong earnings, you'd double your money in 4.8 years (72/15 = 4.8).

If you earn 7%, your money will double in a little over 10 years. You can also use the Rule of 72 to plug in interest rates from credit card debt, a car loan, home mortgage, or student loan to figure out how many years it'll take your money to double for someone else.

How the Rule of 72 Works. For example, the Rule of 72 states that $1 invested at an annual fixed interest rate of 10% would take 7.2 years ((72 ÷ 10) = 7.2) to grow to $2. In reality, a 10% investment will take 7.3 years to double (1.10^7.3 = 2).

As a rate of return, long-term mutual funds can offer rates between 12% and 15% per year. With these mutual funds, it may take between 5 and 6 years to double your money.

For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money. Note that a compound annual return of 8% is plugged into this equation as 8, and not 0.08, giving a result of nine years (and not 900).