[Finance Wiz @Daniel] The “Rule of 70” to Double your Wealth

[Finance Wiz @Daniel] The “Rule of 70” to Double your Wealth

[Finance Wiz @Daniel] The “Rule of 70” to Double your Wealth

FINANCE

2021-05-12

5  Mins Read

When we watched magic shows as kids, the magicians’ tricks always made our jaws drop – especially when they turned one cash note into two. 

Yet when we grew up with magic tricks revealed, we got to realise the cruelty of the real world. After all, it is always difficult to double our wealth.

That said, many people still aim to, or wish to, double the money they made from work – no matter it is to turn one dollar into two dollars, or to make $100,000 become $200,000.  

So is it a mere wish or a feasible goal? I am Daniel Lau, AXA Head of Investment Proposition. Let’s learn more on how to achieve your financial wellness in my new column : Finance Wiz @Daniel.

 

An easy rule of thumb to manage your wealth

If “doubling your wealth” is merely a wish, it must be the faster the better. But if it is a goal, then you will need a rule of thumb, which is the easier the better. Here, I would like to introduce the “Rule of 70” as a simple calculation. Take it as a benchmark, no matter what kind of investments or wealth management plans you are having. It is much easier to make up your plans with the “Rule of 70”, the formula of which is: 

Number of years to double your wealth = 70/annual rate of return

What’s your Timetable to double your Fortune?

It may be confusing just looking at the formula. So how many years does it really take to double my wealth? Let’s take an example: if we had $100,000 worth of investment principal, with a 7% annual rate of return, then we would need 10 years to double the amount of money. 

If you want to be a bit more aggressive? Assume the annual return rate is 10%, you would still need 7 years to double your wealth. 

The question is, what kind of investment strategy could meet the above assumptions? 

Are you planning to take 70 years to double your deposit?

When you look around the world, you would realise global interest rates are hovering at rock-bottom lows. And you calculate with this rule: if you choose to deposit your money in a bank, and “boldly” assume you would get a 1% interest rate in return, then how many years will it take to double your principal? 

The answer is 70 years! 

It takes ages to strike the goal. And sorry to tell you that deposit rates are well below 1% nowadays. Even the red-hot virtual banks are offering at most 0.65% for deposits. In other words, a period of seven decades is not sufficient to double your wealth. 

 

Can you take the risk of High-risk investments?

For sure, there is always a way out. If you have the stomach for the tumultuous stock market, equity derivatives may be something you can go for. In this case, your wealth can be easily doubled in just a few hours, yet the flip side is you could also lose as much in a short period of time. 

If you want to be more prudent? Investing in property is certainly lucrative. Yet it is a game with high thresholds, which means only those who can afford exorbitant down payments can play.    

So you may ask, what kind of investment tools should I use to double my fortune? 

If you want to avoid risky instruments and you have a modest amount of money to start with, you should take a look at saving insurance plans with growth potentials. With this kind of plan, your wealth snowballs as time passes. It will not only build a robust financial basis for your family and children, but will also establish a solid foundation for wealth succession. 

The above content is reviewed by Mr Daniel Lau - Head of Investment Proposition of AXA Hong Kong and Macau

No warranty or responsibility is assumed by AXA Hong Kong and our related or holding companies regarding non-infringement, security, accuracy, completeness, adequacy, reasonableness, fitness for a purpose or free from computer viruses in connection with the information and materials provided.  AXA Hong Kong and our related companies and holding companies do not accept any liability for any loss, damage, cost or other expense, whether wholly or partially, directly or indirectly, arising from any error, inaccuracy or omission of the information and materials to the extent that such liability is not excluded by law.

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