72 Rule in Investing

Today I wish to share with you on the 72 Rule in Investing. It is a simplified version of compounding formula, and I think it is quite interesting for you if you are interested in mathematics.

Compounding is a very important factor to decide how much you could earn at the end of the investment journey. In long run, The multiple effect is much higher than the addition effect. For example, let me show you a table as below:

1,000	+1000	*1%	*5%	*10%	*15%
	2,000	1,010	1,050	1,100	1,150
	3,000	1,020	1,103	1,210	1,323
	4,000	1,030	1,158	1,331	1,521
	5,000	1,041	1,216	1,464	1,749
	6,000	1,051	1,276	1,611	2,011
	7,000	1,062	1,340	1,772	2,313
	8,000	1,072	1,407	1,949	2,660
	9,000	1,083	1,477	2,144	3,059
10 years later	10,000	1,094	1,551	2,358	3,518
	11,000	1,105	1,629	2,594	4,046
	12,000	1,116	1,710	2,853	4,652
	13,000	1,127	1,796	3,138	5,350
	14,000	1,138	1,886	3,452	6,153
	15,000	1,149	1,980	3,797	7,076
	16,000	1,161	2,079	4,177	8,137
	17,000	1,173	2,183	4,595	9,358
	18,000	1,184	2,292	5,054	10,761
	19,000	1,196	2,407	5,560	12,375
20 years later	20,000	1,208	2,527	6,116	14,232
	21,000	1,220	2,653	6,727	16,367
	22,000	1,232	2,786	7,400	18,822
	23,000	1,245	2,925	8,140	21,645
	24,000	1,257	3,072	8,954	24,891
	25,000	1,270	3,225	9,850	28,625
	26,000	1,282	3,386	10,835	32,919
	27,000	1,295	3,556	11,918	37,857
	28,000	1,308	3,733	13,110	43,535
	29,000	1,321	3,920	14,421	50,066
30 years later	30,000	1,335	4,116	15,863	57,575

As you can see from the table above, the longer the period we invest in and the higher the compounding rate that we can achieve, the better the return we could get. In long term investment, the most important thing that we have to achieve is the Self Discipline as well as the Risk Management. The more experience we are in the investing, the better result we could achieve in long run.

Ok, so what's 72 Rule here?

It means that the number of years that we double up our investment are roughly derived from 72 divided by the compounding rate. For example, if your annual return rate is 1%, it would take about 72 years to double up the principal amount. However, if your annual return rate is 10%, it would only take about 7 years to double up the principal amount. If we choose to select an investment vehicle,  Equity is always a good tool in achieving higher return rate compared to Fixed Deposits / Fixed Income instruments.

Please note that, however above is just the theory of 72 Rule. It always depends on ourselves in achieving the target annual return rate. Let us work hard together to have a good investing execution plan.

Thank you and good luck in your investment journey.