I was Googling the “law of 72” which is used in compound interest to determine how many times your initial investment is required to be compounded at a given interest rate to double itself. In Investopedia website they defined it as “a simple way to determine how long an investment will take to double given a fixed annual rate of interest”.
When I read the words “annual rate”, I laughed out loud. What if the rate was for a given “cycle” which less than a year, perhaps just over a month? Lets say there are 10 of these cycles in a year, and lets assume the rate per cycle is 7%, using the “law of 72”, it would be 72/7 or 10.28 cycles or in other words after 11 cycles, your initial investment would double.
Let us try a hypothetical scenario, where the minimum investment was $1,000, and you could increase it in increments of $100, so it would be $1,000, $1,100, $1,200, etc. For this illustration we can use 7% as the fixed rate per cycle. We shall use start with $2,000 for this example. After one cycle, you would get 7% or $140. Since the investment steps are in the nearest $100, you could increase the investment in the next cycle by $100, and save the $40 until it grows to $100 or more. Now let’s tabulate it over 11 cycles.
Cycle 1 Profit $140 Next investment amount: $2,100 Remainder : $40
Cycle 2 Profit $147 Next investment amount: $2,200 Remainder : $87
Cycle 3 Profit $154 Next investment amount: $2,400 Remainder : $41**
** $87 + $54 = 141 (so, we can add another $100 to invest)
Cycle 4 Profit $168 Next investment amount: $2,600 Remainder : $9**
Cycle 5 Profit $182 Next investment amount: $2,700 Remainder : $91
Cycle 6 Profit $189 Next investment amount: $2,900 Remainder : $80**
Cycle 7 Profit $203 Next investment amount: $3,100 Remainder : $83
Cycle 8 Profit $217 Next investment amount: $3,400 Remainder : $0**
Cycle 9 Profit $238 Next investment amount: $3,600 Remainder : $38
Cycle 10 Profit $252 Next investment amount: $3,800 Remainder : $90
Cycle 11 Profit $266 Next investment amount: $4,100 Remainder : $56**
As you can see after 11 cycles, the total amount is at $4,156 just a little over double the initial amount. If you could fit 10 cycles in a year, you can guess that a cycle is 5 weeks, as there are 52 weeks in a year. So, 11 cycles is a year and 3 weeks. In just that time, your initial investment has doubled, and in that same amount time a year later, it will double again. $2K becomes $4K, becomes $8K, $16K, $32K, $64K. This is what we call annual exponential growth.
Somehow this seems too good to be true, and yet truth is stranger than fiction.