- Investment amount and tenure are crucial for long-term financial planning
- The Rule of 72 estimates years to double money by dividing 72 by interest rate
- At 9% annual return, money doubles in 8 years according to the Rule of 72
For long-term financial planning, two factors play a crucial role: the investment amount and the tenure. Due to the power of compounding, a longer tenure can help you build a sizeable corpus even with a small amount. Doubling the invested amount is a major financial goal for many investors and tenure is key. Through a combination of strategic investments, investors try to maximise returns even if it means taking higher risks.
However, it is better to have realistic goals for investment strategies to avoid any financial stress. Depending on the asset type, simple tried and tested methods can also help one achieve ambitious targets.
The โRule of 72' is a simple way to estimate how long it will take to double your money at a fixed annual rate of return.
How Rule of 72 Works
Under this rule, you divide 72 by the expected fixed annual interest rate on the invested amount. For example, at 9% interest rate, money doubles in 8 years (72 รท 9 = 8). A realistic timeline is important for financial planning and reaching pre-determined goals.
Traditionally, it has been seen that this rule works best with rates between 6% and 10%. Outside that range, it appears to be less accurate. This rule helps to understand a realistic timeline of the investment journey and how the power of compounding works.
How Long Will It Take To Turn Rs 5 Lakh To Rs 10 Lakh?ย
If you want to double Rs 5 lakh, use this technique to estimate your financial trajectory. For conservative investors, low-risk investment tools such as high-return FDs or gold can help you double Rs 5 lakh in less than a decade.
Another safe option with guaranteed returns is the public provident fund (PPF). However, it comes with a 15-year-lock in period.
Assuming an investment instrument gives 8% annual returns, by the rule of 72, the money should double in nine years. Let's see how that works:
Invested Amount: Rs 5,00,000
Estimated return: Rs 8%
Time: 9 years
Profit: Rs 5,79,462
Total Amount: Rs 10,79,462
The rule really works if the interest rate remains consistent. If you invest in a more conservative investment tool, such as fixed deposits with around 7% returns, the money will get doubled in about 10 years.
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