Power of time and compounding.

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).

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.