Rule Of 72 In Compounding

he who understands it, earns it; he who doesn't, pays for it

One of Albert Einstein's famous quotes and one which is very true. This has nothing to do with Einstein however and was discovered way before his time and credited to an Italian Luca Pacioli in 1494.

Now that many of us are involved in compounding interest projects it is time to dig a little deeper to understand how powerful this phenomenon really is. Only being involved within a compounding project do you realise how much you have been missing out and now is the time to cash in. Every project I invest into now has to have compounding at the heart of it otherwise what is the point.

The rule of 72 is a figure used to work out the time it takes to double your investment at a given rate of return or growth rate. This number 72 is accurate for investments between 6% and 10% and only those that are compounded. This is the base number which can be used to quickly calculate in your head. For example 10% would take 72 divided by 10 = 7.2 years. Our very own HBD is 12% and therefore would take 6 years to double but not quite as it falls outside the norm and will get to that further in the post. I would guess most of our projects we are involved in would see us adding to the investments on a regular basis cutting doubling times predicted by a formula.

For instance if a company's turnover grows at 8% per year using the figure 72 it would take 9 years to double their turnover. Inflation which we are currently experiencing all over can also be calculated with the magical 72. 4% inflation would mean everything we purchase would double within 18 years. pretty neat knowing this magical number solves so many things we come across regularly.

What is interesting to know if your investment takes 3 years to double that doubling effect continues. For instance a $5000 investment after 3 years in now $10 000 but the next one in 3 years is now $20 000 and so forth meaning that last number doubles. This is how the rich get richer and money makes money as it truly does.

The number 72 does change for higher return percentages which we deal with so using HBD is a great example now. 6-10% works for the number 72 and anything outside those percentages we either subtract or add. 8% is chosen as the base now so for every increase on the number 72 we need 3%. 12% tells us we are 4% over so the number now moves to 73. Very basic and is designed to make it more accurate. 73 divided by 12% gives us 6.1 years now which is what HBD gives us.

This is CUB right now with a 63% APY. If one had 100 CUB staked/pooled (forget the dollar signs as this is 100 CUB then in 5 years one would expect to see 2327 CUB and who knows what the value is by then.

DeFi is harder to gauge as the pools are constantly changing meaning the APY is always moving and is never constant. The one good thing is they are a hell of a lot higher and suggest using a compound calculator for better guesstimates as they are a thumb suck at best. A good problem to have mind you so don't ever complain you aren't earning enough.