Essential Investment & Financial Growth Rules: Mastering Compounding, Debt, and Wealth Management

 

Compounding & Investment Growth Rules

1. Rule of 69 – Used to estimate the time required for an investment to double with continuous compounding:

   $$T \approx \frac{69}{r} + 0.35$$

   where r is the interest rate in percentage.

2. Rule of 72 – Used to estimate the time required for an investment to double with discrete compounding:

   $$T \approx \frac{72}{r}$$

   Works best for interest rates between 6%–10%.

3. Rule of 70 – Another variation of the Rule of 72, more accurate for lower interest rates:

   $$T \approx \frac{70}{r}$$

4. Rule of 114 – Estimates the time required to triple an investment:

   $$T \approx \frac{114}{r}$$

5. Rule of 144 – Estimates the time required to quadruple an investment:

   $$T \approx \frac{144}{r}$$

Loan & Debt Payoff Rules

6. Rule of 78 – Used in loan amortization (especially old-style loans), where more interest is paid in the early years of the loan.

7. Rule of 15/30 – Helps decide between a 15-year vs. 30-year mortgage:

   • A 15-year loan saves 50–60% interest over a 30-year loan.
   • A 30-year loan offers lower EMIs but higher total interest paid.

Investment & Retirement Planning Rules

8. Rule of 25 – Estimates the amount needed for retirement by multiplying annual expenses by 25 (based on a 4% withdrawal rate).

9. Rule of 4% – Suggests withdrawing 4% of retirement savings annually for a sustainable income without running out of money.

10. 10-5-3 Rule – A rough guide for expected returns:

    • Stocks: 10% average annual return
    • Bonds: 5%
    • Savings accounts: 3%

Money Management Rules

11. 50-30-20 Rule – A budgeting rule:

    • 50% Needs, 30% Wants, 20% Savings/Investments

12. 100 Minus Age Rule – Determines asset allocation in stocks vs. bonds:

    • $\text{Stock Allocation} = 100 - \text{Age}$
    • Example: If you're 30, invest 70% in stocks and 30% in bonds.

Stock Market & Inflation Rules

13. Rule of 72 for Inflation – Determines how fast prices will double due to inflation:

    $$T \approx \frac{72}{\text{Inflation Rate}}$$

    If inflation is 6%, prices will double in 12 years.

14. Rule of 20 – A quick method for valuing the stock market:

    $$\text{P/E Ratio} + \text{Inflation Rate} \approx 20$$

    If the sum is much higher, the market may be overvalued.

 What are your thoughts on this? Share your perspective in the comments!