![[Introduction to Financial Management (4)] - The power of compound interest and the Rule of 72](/_next/image?url=%2Fimages%2Fblog%2Ffb-posts%2Fen%2Ffb-post-0006-cover.png&w=3840&q=75 "[Introduction to Financial Management (4)] - The power of compound interest and the Rule of 72")
[Introduction to Financial Management (4)] - The power of compound interest and the Rule of 72
What is the power of compound interest is what the ancients called compound interest. If the investment doubles every year, then the annual amount of 100,000 yuan after ten years is as follows: 10, 20, 40, 80, 160, 320, 640, 1280, 2580, 5160, 10320 Have you noticed any changes in the numbers? The increase of 100,000 yuan in the first year does not seem to be much, but in the last year, it increased by 51.6 million in the last year alone. Of course, investing is only one year late,
What is the power of compound interest is what the ancients called compound interest.
If the investment doubles every year, the annual amount of 100,000 yuan after ten years is as follows:
10、20、40、80、160、320、640、1280、2580、5160、10320
Have you noticed any changes in the numbers? The increase of 100,000 in the first year does not seem to be much, but in the last year, it increased by 51.6 million in the last year alone. Of course, if you invest only one year late, you will lose 51.6 million yuan. Therefore, the power of compound interest must be accumulated over time to see the explosive power of compound interest!
If the investment grows by 15% every year, it will double in five years. If you invest for fifty years, there will be ten five years and ten doublings. The result is the same as the above number. After doubling ten times, $100,000 will become $13.2 million. If you give a newborn child 100,000 U.S. dollars now, he will have 13.2 million U.S. dollars when he is 50 years old, and he can live a very wonderful life.
Next let’s talk about the 72 rule! The rule of seven or two is the relationship between the growth rate required to double the growth and the investment years in investment science! For example, if the return on investment is 15% per year, it will nearly double after five years. Multiplying 15 in those five years will be close to 72 (5 x 15 = 75). Although there is a slight difference between 72 and 75, it is close, so if very precise calculations are not required, the 72 rule is enough to estimate the relationship between growth rate and investment years.
So if someone asks how many years it will take for an investment return rate of 10% to double, we can quickly calculate that it will double in almost seven years. 10 x 7 =70 is close to 72.
So if someone asks how many years it will take for an investment return rate of 20% to double, we can quickly calculate that it will double in about three and a half years. 20 x 3.5 =70 is close to 72.
So the Rule of 72 allows us to quickly calculate the way to double the investment growth, which is the relationship between the time required and the growth rate!
Please search YouTube: CLEC Club
Or
Investment and financial management education YouTube provides reference
https://www.youtube.com/channel/UCdWAon5jrsET9PcJ-nS-b6Q
Date of writing: June 01, 2016
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