Jakarta, Armfalcon.com – Every investor, including you, certainly needs an estimate of when their investment capital can multiply in the future. To know this, the Rule of 72 can be used to predict this.
Reporting from Forbes, the Rule of 72 is the simplest formula for predicting how long your investment capital will increase by 100%.
Curious about how the Rule of 72 formula works? Here’s the review.
Rule of 72 formula
If your investment in a year will produce a yield of 8%, then in nine years your investment capital will double or 100%.
Where do these numbers come from? Of course it is from the quotient 72/8 = 9.
The Rule of 72 formula will apply in real terms if the return on your investment is actually constant in the assumed amount over the specified time period. And this investment is made in a lump sum or one time payment without any increase in capital in the following month or year.
Here is the proof:
In the first year, someone places IDR 1 million in an instrument that can generate a net return of 8%. If he lets his capital last up to 9 years, the Rp. 1 million will change to Rp. 2.02 million.
The Rule of 72 formula applies because there is a compound interest factor in this calculation. The higher the investment yield, the faster your investment capital will increase by 100%.
When should you use this calculation
You can use this calculation the first time you want to do the first analysis about your long-term investment performance.
The rule of 72 is a very simple formula, and doesn’t require complicated analysis.
However, considering that there is no “guaranteed” return on investment other than government bonds, it would be wise to do an in-depth analysis of your investment.
You also have to manage your expectations regarding returns, because it is likely that the investment returns that you will get are still far from your expectations.
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