There are many ways and means to invest in the market. From equity to debt, there are a variety of options available for people to invest as per their risk appetite and financial needs. A basic rule of investing is that you should not invest all the money you have, but also keep some money aside for emergencies; The investment advisor has made some special rules for this. Here are seven rules to help you determine how long it will take for an investment to double in value, and how much money should be kept in an emergency fund.
Rule of 72
This rule helps in finding the time taken for the investment to double. To use this formula, divide 72 by the rate of return; This shows how many years it will take for the money to double. For example, if an investment returns 12% annually, dividing 72 by 12 shows that the money will double in approximately six years. It also helps in calculating the rate of return required to double the money in a given period of time; For example, to double one’s money in just four years, one would need an annual return of approximately 18% (72 divided by 4).
Rule of 114
This rule calculates the time taken to triple an investment. For example, if the money is invested in a place that gives 12% returns annually, dividing 114 by 12 shows that the investment will triple in approximately nine and a half years.
Rule of 144
This rule is similar to the Rule of 72 and Rule of 114, but it helps find the time it takes for an investment to quadruple (quadruple). To apply this rule, divide 144 by the expected rate of return on the investment; The number obtained from this tells how long it will take for the money to quadruple. For example, if an investment option yields 12% per annum, the investment will quadruple in 12 years (144 divided by 12).
50-30-20 Rule
This rule states that you should keep 50% of your income on needs, 30% on your desires (hobbies/lifestyle) and the remaining 20% for savings. 100 minus age rule
This rule helps in deciding the allocation between equity and debt investments. In this the age of the investor is subtracted from 100; The number obtained tells you the percentage of the portfolio that should be invested in equities. This method is adopted because an investor’s risk appetite generally decreases with increasing age. For example, if an investor is 30 years old, he should invest 70% (100 minus 30) in equities and the remaining 30% in debt.
Minimum 10% investment rule
This rule recommends investing at least 10% of your income for the long term and increasing this investment amount by 10% every year.
emergency fund rule
Another principle of investing is to maintain a fund for financial help in times of emergency. There is no fixed rule for its exact amount, but the fund must be sufficient to meet the expenses for at least six months.