The Rule of 72 (and its impact on HBD Savings)

I am always intrigued by general principles or rules of thumb that 'just work'.

The 80/20 rule is one principle or rule that I love (and live by). Another is the Rule of 72, as a quick shorthand way of viewing the potential returns on investments.

In a nutshell, the Rule of 72 is a rule of thumb for calculating roughly how long it will take to double your money based on a given annual rate of return.

Given that this calculation involves building in the compounding effect of interest being applied to an ever increasing lump sum (as interest is added each year), this calculation is not all that easy to work out in your head - unless you have a quick and easy methodology like this!

This simplified formula is applied by dividing 72 into your annual rate of return. The resulting answer is the number of years it would typically take to double your money if this rate of return remained constant.

Example - 2% rate of annual return

As a simple example, say you have £10,000 in the bank at an interest rate of 2% per year (you'd be lucky..!), then it would take roughly 36 years to turn your £10k into £20k (i.e. 72 divided by 2). I say 'roughly' as it is not exactly accurate but it will be close in the majority of cases.

Why the Rule of 72 is of particular interest on Hive?

The Rule of 72 is of interest to Hive users right now given that the interest rate on Hive Backed Dollars (HBD) is currently knocking 12%! That is a mouth-watering return on investment given that the underlying asset value 'should' remain relatively stable by the very nature of it being a stable coin.

Most investment houses would kill to be able to give predictable returns at this level.

The only asset class that comes close is stocks and real estate and these are typically much more volatile and therefore risky.

So how long would it take to double an investment of £10,000 invested into savings in HBD?

It would take approximately 6 years to double your £10k investment into £20k. Then a further 6 years to turn it into £40k and so on. That's just 12 years to turn £10k into £40k without you doing anything. It's purely passive.

Now, we know that the crypto space can be (very) volatile and even though HBD is a stable coin, it too fluctuates and could be at risk if the Hive project sunk, so let's not get too carried away but for now it's nice to see the Rule of 72 spit out a nice number for HBD (savings) holders.

Not financial advice. DYOR