How to grow your money: 6 investing thumb rules to become wealthier
Investing can be compared to a game with simple rules for success but also full of emotional traps. That's why having a set of important rules is essential to navigate the unpredictable world of investing. Remembering and using these simple rules can help investors navigate the complex financial world. These rules can assist investors in making informed decisions, setting achievable goals, and working toward long-term financial success.Here are 6 thumb rules of investing to help you become a successful and wealthy investor.
1) Rule of 72
Doubling your money: Wondering how long it takes for your money to double? The Rule of 72 comes in handy for this. It's a simple formula that helps estimate the time for an investment to double in value. Divide 72 by the annual rate of return on your investment to get the approximate number of years it will take to double your money. For instance, with a 6% return, your money will double in about 12 years. The Rule of 72 is valuable because it provides investors with a quick way to assess the potential growth of their investments. This rule enables investors to make more informed decisions about capital allocation and investment duration.Also read: 10 financial planning thumb rules to manage money throughout your life
2) Rule of 114
Tripling your money: The Rule of 114 helps you figure out how long it will take for your money to triple. Just like the Rule of 72, you divide 114 by the rate of return to find out the number of years. For example, with a 6% return, your money will triple in about 19 years. Tripling your money might seem like a far-off goal, but understanding this rule can help investors set realistic goals and make smart investment choices.Quadrupling your money: For those who dare to dream even bigger, there's the Rule of 144. This rule tells you how long it takes for your money to quadruple. Divide 144 by the rate of return, and you'll know the number of years it will take. At a 6% return, your money will quadruple in about 24 years.
3) Rule of 70
It is important to consider how fast its value can drop. The Rule of 70 is a useful tool to understand the impact of inflation on your wealth. To apply this rule, simply divide 70 by the inflation rate to estimate how long it will take for your wealth to be worth half as much. For instance, with a 5% inflation rate, your wealth will be halved in about 14 years. Inflation diminishes the purchasing power of your money over time, so it's vital to consider it when making investment decisions.Also read: Saving Rs 1 crore could be easy if you know this trick: How to become a crorepati with an SIP of Rs 5,400 per month
4) The 10,5,3 rule
The 10,5,3 rule gives a simple guideline for investors. It suggests expecting around 10% returns from long-term equity investments, 5% from debt instruments, and 3% from savings bank accounts. This rule helps investors set realistic expectations and allocate their investments accordingly.5) 100 minus age rule
Managing risk in your investment portfolio is crucial, and asset allocation is key. One common rule for determining asset allocation is the "100 minus age" rule. According to this rule, you allocate a percentage of your portfolio to equities based on the formula: 100 minus your age. The remaining percentage should be invested in debt. For instance, if you are 25 years old, you might consider allocating 75% to equities and 25% to debt. This rule is designed to help investors achieve a balanced approach to risk and return, taking into account their age and risk tolerance.
6) The net worth rule
Have you ever thought about how to gauge your level of wealth? The net worth rule offers a straightforward formula for doing just that. Multiply your age by your gross income and divide by 10 (or 20 in India). This rule provides a quick way to evaluate your financial status and monitor your progress in achieving your wealth-building objectives. For instance, if your net worth equals or exceeds the result of this calculation, you can consider yourself wealthy. For example, if you are 30 years old and your gross income is Rs 12 lakh, then your net worth should be at least Rs 18 lakh to be considered wealthy.This story originally appeared on: India Times - Author:Faqs of Insurances
