How The Rule Of 114 Can Help Your Savings Grow, According To A Financial Expert

There are many ways to invest, and while some individuals prefer the stock market to other investment types like real estate or cryptocurrency, they all have the possibility of doubling or even tripling your money in a few short years. Knowing when your assets will triple in value can be tricky, but it can be essential to know, especially if you're looking to use your investment to buy a home or you're hoping to save up the amount you need to retire early.

Sure, you can go off historical returns or online calculators, but there is a simpler method that only involves one calculation: According to expert financial writer Andrew Lokenauth, the rule of 114 provides a good estimate on how long it will take for an investment's value to triple. This calculation works by dividing 114 by the rate of return on your portfolio or asset. So, if you make an investment with a 3% return rate, by dividing 114 by 3, you could estimate that it would take 38 years for that investment to triple. Meanwhile, if you wanted to estimate how long it would take an investment to double, you could implement the rule of 72 by similarly dividing 72 by the rate of investment.

Like other quick-calculation financial rules, the rule of 114 provides a quick and roughly accurate estimate but it has its limitations. The rule works well for average return rates, including the ideal rate of return for a 401(k). However, it becomes less reliable when dealing with assets that experience large swings such as cryptocurrencies like Ethereum, which once jumped 42% in one week, or commodities like gold, which recently shot up in value. Additionally, the rule of 114 does not account for taxes and assumes a constant rate of return, which is not always guaranteed due to underperforming assets or general market downturns.

Still, the rule of 114 can be a useful tool for quick comparisons or estimates. For example, if your portfolio averages 8% returns annually, it would take roughly 14.25 years to triple, while a 14% return would cut that time down to around 8.1 years. While the rule of 114 should not replace financial planning or be used to make significant financial decisions, it can help investors visualize how compounding works. However, if you're looking for a more complete financial picture and accurate return estimates, working with a financial professional is still likely the best option.