When Will My Investments Double?

Most of us in client-facing roles come across this question quite often. Luckily, we have this very powerful financial tool that helps investors estimate the time it takes for an investment to double in value “the Rule of 72”.

The Rule of 72 is like a secret code that investors use to crack the doubling puzzle. It's super easy to apply. Just divide 72 by the annual rate of interest your investment offers, and voila! You'll get an approximate number of years it'll take for your investment to double.

Now, keep in mind that the Rule of 72 works best for investments with a fixed annual interest rate. If your investment doesn't fall into that category, you can still use the Rule of 72 by assuming an estimated rate of return based on the investment's historical performance.

Let me break it down for you using an example. Suppose you've invested in a Fixed Deposit (FD) with an annual interest rate of 8%. You're eager to know when your investment will double. Well, with the Rule of 72, it's a piece of cake! Just divide 72 by 8, and you'll find that your FD’ll take around 9 years to double in value.

Similarly, if you've invested in equities with an estimated annual expected return of 15%, your investments might take around 72 by 15, i.e. around 5 years to double!

On the plus side,

1. the Rule of 72 is incredibly simple to use. You don't need a PhD in finance to crack the code. It allows you to determine the doubling time of your investments, which is crucial for setting goals and managing risk. With this knowledge, you can adjust your investment strategy accordingly, making informed decisions along the way.

But like any tool, the Rule of 72 has its limitations.

It's more accurate for lower rates of return, typically between 6-10%. For higher rates, the estimated value may fluctuate. Remember, it provides a rough estimation, so don't take it as gospel.

1. Also, the Rule of 72 isn't suitable for investments with changing interest rates or those involving simple interest.

So, dear investor, embrace the Rule of 72 as your trusty companion in the quest to double your investments. Use it alongside your comprehensive investment strategy, and you'll better understand when you'll achieve your financial milestones.

Ready to plan to double your investments like a pro? Let's unravel the secrets of investment success!