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The ‘8-4-3 rule of compounding’ helps in getting returns for investment faster in less time. However, this rule works differently in each asset class
By adopting the 8-4-3 rule and committing to long-term investment, one can be a millionaire within 15 years. (Representative/Shutterstock)
Many aspire to become millionaires through saving, but one might not be aware that it is possible even on a salary of Rs 50,000 per month. While it may sound surprising, achieving this goal is attainable through the power of compounding.
Adopting the 8-4-3 rule and committing to long-term investment can make one a millionaire within 15 years. Let us understand how the 8-4-3 rule, combined with compounding, can pave the way to becoming a millionaire:
What is this formula of compounding?
Compounding is the power of investing to make money grow year after year. With this, one’s investment increases manifold. The amount generated by adding interest or returns on the money one invests is reinvested. This is called compounding.
8-4-3 Formula
The 8-4-3 rule is related to compounding, following which an investor can get returns for their money faster. Let’s understand this with an example:
Suppose one’s salary is Rs 50,000, and they invest Rs 20,000 in an asset class that pays 12 per cent interest per year. In this way, one can earn Rs 32 lakh in eight years. The first Rs 32 lakh is attained in eight years, but the next Rs 32 lakh would be attained in four years at the same rate of interest. Following this method, after 12 years, one can get a return of Rs 64 lakh.
Now, if one leaves the amount for three more years and continues to invest Rs 20,000, the amount accumulated by them in these years will increase from Rs 64 lakh to Rs 1 crore.
However, before investing money in any asset class (shares, bonds, bank FDs and other investment schemes), it is advised to consult a certified investment adviser.
(Disclaimer: The investment-related information provided here is for general information only. News 18 or its management is not responsible for the same. Before making any investment, please use your discretion and seek expert guidance)
