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What is 7+7+6=20 Formula?

  August 13,2021

What is 7+7+6=20 Formula?

We heard about Rule 72, 114 and 144, but we have not heard anything about the above formula, yes, you guessed it right!!! Let’s understand what it store for us…

Rule 72 is nothing but how long or how much interest rate to double your investments. For example, if you believe the particular investments will fetch 12% CAGR per annum then your money will be doubled in 6 years, and if somebody told you about one particular investment, can double the money in 4 years means that the investment will fetch 18% CAGR.

Rule 114 for trebling and 144 for quadruple your investments.

Normal tendency of the retired person and retirement kitty is only to safeguard that investment and not taking any risk or hardly very few volatile investments because investors in general are emotionally connected.

At the same time, if you are practical and if you think about any other options, then you have many options to choose. I found this one solution seems to be workable.

Let us assume the individual is retired from his long career and he has 100 rupees in his retirement kitty. Let’s take life expectancy of the individual is 80 Years which means another 20 years he has to live without earning potential or less earning capability. The 100 rupees he has to spend for the next 20 years, normally this money will go to fixed instruments only.

My solution is simple and straight forward like, out of 100 rupees, Rs 50 he is going to spend only after 10 years, so the first 50 rupees he can invest whatever he feels comfortable and I have no issue. If I go back and check the fund performances of the well managed balanced fund category will easily double in 7 years, so the assumption is 10% CAGR which is very moderate expectation.

I will take 50 rupees from you and invest in a balanced fund which will double in less than 7 years and I will give the 50 rupees on or before 7 years which I got it now.

I will repeat the same for the next 7 years and will again give another 50 rupees and in the last 6 years I will give the remaining 50 rupees or 100 rupees depends on your need.

Why I took 6 years in the last stage is, market will always give abnormal returns whenever it doubles, I will not wait for 7 years and if the valuation is very high I can also move something to debt fund make sure that his money doubles in less than 7 years.

In the first 14 years, the chances of getting one extra year is very much possible that I can use it for the last stage where I have only 6 years.

As an investor you don’t need to run away from equities, and equities are the oxygen of one’s wealth creation as well as wealth protection/distribution, as long as investment horizon is longer year.

Mutual fund is the wonderful investment vehicle one can customize the way they want, as long as their objective of GOAL is long term in nature, you can’t find better investment vehicle at the same time highly transparent, tax efficient and highly liquid as well.

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