Updated on: July 23, 2021 ; Wealth & Value
Rule of 114:
In this one other short article, we will look at a shortcut to calculate the investment tripling time. We popularly know this shortcut as the Rule of 114.
Basically, it provides a quick way of roughly computing your investment tripling time. This helps you calculate how many years it will take to triple your initial investment value. All you have to do is simply divide 114 by the rate of return (you have to consider the rate as integer and not as a percentage). And you get the number of years needed to triple your investment.
So, if your rate of return is 6%, then you divide 114 by 6 (not by 0.06). You get 19 years as the time required to triple your initial investment value. Now, please note that this is just an approximate rule for the back of the envelope calculation.
Let’s see how did we come up with this approximate rule of 114. The table below lists the exact time required to triple your investment (in years) for different ‘rate’ scenarios.
Now, the last column is the number you get when you multiply the time (in years) and the required rate needed for tripling your investments. This is the backward calculation to figure out the magic number.
If you look closely, you will notice that this number lies in the range of 113 to 119 for reasonable returns rates (5% to 17%). Normally, you would expect your investments to have a return rate of 8%-15%. This is what I am terming as the reasonable return rate. So, 114 is the accepted norm.
You can also notice that this number increases rapidly from 114 to 119 when the return rate approaches 18%. So based on your expected return I would advise you to change the factor to 115-119 accordingly.
So, now you know how to quickly compute your investment tripling time. Also read the rule of 72, which is a quick way to compute investment doubling time.