The time taken to double your money is no more exciting. Look out for the time to go 16x instead.

Almost every 2nd calculator used in financial markets is based on a linear interest rate. The interest income received on instruments like FDs (fixed deposits), CDs (certificate of deposits) and bonds are the foundation on which the returns are forecasted.

If we know the annual returns are 13%, we can predict the fund balance at the end of 1, 5, 10 or 20 years. It is that simple. The challenge arises when the instruments we select are stocks, mutual funds or real estate wherein the returns per year are not linear. We may see negative annual returns that could throw us off balance and hurt the wealth compounding.

You may refer to the below article on how to calculate real returns if they are asymmetric.

https://viswaram.com/mutual-funds-strategy-109-the-curious-case-of-asymmetric-returns-f19c4fed9c38

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Most of you might be familiar with the rule of 72, i.e. the time taken to double your money. If you have not heard it before, let me explain it with some examples.

1. If your annual returns rate is 12%, then the time taken to double your money is 72/12 = 6 years.
2. If the returns are 18%, then the time taken is 72/18 = 4 years.
3. If the returns are 7%, then the time taken is 72/7 = 10.28 years.

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Fairly easy calculation, but the issue is that most people stop there. They assume that your money will grow by the same value when the period doubles.

I got this feedback when chatting with one of my clients. He said his original capital of 1 million became 2 million in 7 years, where 1M was the gains. He thought over the next 7 years, his capital would grow by another 1M, i.e. a total fund value of 3M. Ideally, his capital would grow 4x to 4M.

The ideal formula you should use is the rule of 144, i.e. divide 144 with the annual returns to know when your capital will quadruple.

1. If your annual returns rate is 12%, then the time taken to 4x your money is 144/12 = 12 years.
2. If the returns are 18%, then the time taken is 144/18 = 8 years.
3. If the returns are 7%, then the time taken is 144/7 = 20.57 years.

The logic is that your original capital will grow 2x, at the same time the returns you generated will also go 2x and that’s where you get 2+2 = 4x wealth creation.

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Similarly, to know when your wealth becomes 16x, divide 288 by the annual interest rate.

1. If your annual returns rate is 12%, then the time taken to 16x your money is 288/12 = 24 years.
2. If the returns are 18%, then the time taken is 288/18 = 16 years.
3. If the returns are 7%, then the time taken is 288/7 = 41.14 years.

People who are blessed with a long life would find it pretty easy to grow their initial capital as time is their friend.

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Now comes the interesting part. Since you learned an annual returns rate of 12% grows your capital 16x over 24 years — why don’t you implement that with your finances? 24 years may seem too long, but think of a person who is starting their career at the age of 20?

By the age of 44, he would have crossed this milestone. So, the next question is, if you are 44 years or older, have you multiplied your income 16 times? If not, where did you go wrong??

If you start now, your wealth will go 16x by the time you are 68. All you need to do is find a good financial advisor who could grow your money exceeding 12% returns annually.

If you are too old, then you may want to pass on this message to your sons & daughters so that they plan out their finances at a young age.

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