As investors we often wonder how fast a proposed investment will double. While we have the mathematical formulas, sometimes we need the figures instantly. Investors and Investment experts alike use certain tools and let’s discuss a few.
The “Rule of 72” was probably introduced by the 15th century Italian Mathematician and Accountant, Luca Pacioli. For a long time, this has been used to estimate the time required for an amount to double at a particular rate of interest. Therefore, if Bank A is offering 6% interest per annum compounded annually, we know our deposit will double in 12 years (72/6 = 12). However, if Bank B offers 4% interest, our deposit will then require 18 years (72/4=18) to double. This is an approximate result but close to accurate, hence used since long.
In pursuit of slightly more accurate tool, some use the “Rule of 70”. If we wish to know when our investment of Rs 1Lakh will double at 5% interest, we divide the interest offered with 70 (70/5=14) to know the time required, 14 years. Similarly, if we wish to know in how many years prices will double when the inflation in consumer goods is 6%, we can know that by simply dividing 70 with current inflation, i.e. 70/6 = 11.66 years.
The Rule of 72 has been there longer, hence more popular. It is also easily divisible by most of the initial whole numbers, 1,2,3,4,6,8,9,12. The Rule of 70 is considered slightly more accurate though both the rules are convenient shortcuts in hands of investors.
If, however you need to know the time in which your investment will treble, you would need to use the “Rule of 114”. So, if you are investing Rs 5 Lakh in an equity mutual fund and you expect the scheme to appreciate at 10% per annum, then you would expect Rs15 Lakh in about 11 and half years (114/10=11.4). However, if the same scheme were to appreciate at 11% per annum, your investment will then treble in about 10 years (114/11=10.36).
Now, if you wish to know how fast you can quadruple your money, use the “Rule of 144”. In the above example your investment of Rs 5 Lakh appreciating @10% per annum will require 14 years & 5 months (144/10=14.4) to be Rs20 lakh.
The above rules simply our task and are not limited to investing alone. If India’s GDP grows at 4.19% as in 2019, we now know it would take about 17 years (70/4.19=16.7) for the GDP to double. The current negative growth rate needs serious improvement, if we wish to see our GDP double in similar periods. GDP growth is closely related to standard of living though the GDP per capita will consider population growth too.
For a long time, the Chinese economy grew at about 10%, as compared to most developed nations who grew at 2% to 3% only. So, while the GDP of China doubled every seven years, the developed countries took about 35 years to double their GDP. With China controlling their population growth, their GDP per capita is now impressive.
Whether it’s our investments, house property or simply our future expenses, the above “Rules” come handy. They do not replace the mathematical formulas but clearly provide convenient shortcuts to ascertain when a certain variable will double, treble or quadruple.
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