- Posted by: Brighter Mind
- Category: Power of Compounding
Rule of 72 and how power of compounding drive it
If you put your investments in the right vehicle, it can grow substantially over a time while you do nothing. It will also be doubles in few years if the returns fetched by your investment tool are good.
But what if you want to know in how many years exactly your investment value will be double. The solution to this query is the rule of 72.
The rule of 72 is the formula which is used by the investors to calculate the time period required to double the investment amount. This formula is particularly based on the rate of returns fetched by the investment products. In order to calculate the years, simply divide 72 by the expected rate of return of your investment.
For example, if you are fetching 6% returns on your investment of Rs.10 Lacs, the time taken to double the amount to Rs.20 Lacs is 12 years (72/6=12).
This is an incredible formula which can tell you how much your future earning will be after certain time frame at particular rate of return. This will help you carefully identify the investment vehicles so as to create maximum wealth in your future.
Let’s take an example to understand why choosing right vehicle is important. Suppose, you have Rs.10 Lacs in the saving account which is offering 3% per annum. You have also invested same amount in fixed deposit which is fetching around 7% returns and in stock market which is fetching around 15% returns.
In this case below will be the scenario.
- For saving account, time taken to double your investment will be 24 years
- For Fixed Deposit, time taken to double your investment will be 10 years
- For Stock Investments, time taken to double your investments will be just 5 years.
You can see that there is a drastic change in required time when the expected rate of return increases in value. Stock market takes around 5 times less years as compared to the saving account and around doubles the money in half time as compared to fixed deposit.
Hence it is important to choose your investment product carefully.
But how is this possible?
The answer is because of power of compounding. Compounding is the process of gaining interest on the accumulated interest and the principle. Hence when you earn more interest in the first year itself, the total amount increase in the second year and you get interest on that total value. Hence it has multiplication effect which causes the money to grow at exponential rate.
In the above example, the interest fetched by the stock market was high than the saving account and FD hence multiplication effect was stronger in stock investment.
Hence whenever your goal for investment is to create wealth, you must consider investing in stock market as it provides highest returns as compared to other investing tools. The point to note here is that the more time to keep you’re your money invested, the more multiplier wealth you will generate.
Remember that real wealth is created by investing and not just saving. Also, you should start as early as possible to see your wealth grow exponentially. Thanks to the Power of Compounding which makes this possible. But the real thing is that you should allow time to let compounding help you.
How Brighter Mind can help you?
We at Brighter Mind, offer aggressive portfolio management service where we invest your money in the valuable stocks for the longer term. This gives investor two benefits – higher return on investments and safety of capital. When you invest with Brighter Mind, you can easily fetch 20% CAGR on your investment value, which according to Rule of 72 takes only 3.6 years to double your money. So when you stay invested with us for longer time, you can see wonders coming your way!
So why wait, invest with us today and see the wealth getting created for you!