Steem and the Rule of 72

in #investing5 years ago (edited)

Most people in the finance industry are familiar with the Rule of 72. What is it and how it relates to Steem?

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The Rule of 72 gives a simple approximation of the time an investment will double in numbers at a given interest rate. It can be presented simply using this formula.

So if you invest 1,000USD at an annual interest rate of 6%, it will double to 2,000USD within 12 years. While the formula is not precisely accurate, it will give you a good ballpark number to consider. It is imperative to note that the formula takes into account compounding the interest, so in the example, the interest of 6USD is added to the initial 1,000USD. That makes the investment amounts to 1,006USD at the start of the second year.

We can also apply it to Steem, where users delegate to bidbots and other accounts which pay returns on a daily basis. The formula does not confine you to use a yearly period. In Steem, most investment opportunities pay returns on a daily basis. The annual percentage rate (APR) that I commonly see being offered at Steem for Steem Power delegation is 18%, which if we used the formula again, will give us 4 years to double the amount invested (which in this case is Steem Power).

But since these SP investment mostly pay on a daily basis, we divide 18% with 365 to get the daily rate which is 0.05% (actually its 0.04931506849) and if we use that same rate to know the number of days (not year since we're on a daily payout now), it will take 1,460 days to double your investment.

However, to my knowledge, I didn't know any of these investment opportunities that automatically reinvest your earnings except for @tipu. In such case, you need to renew your delegation everyday adding your earnings to your existing delegation, which will be tedious. @tipu on the other hand, has an option to reinvest your earnings automatically which makes the process a breeze.

Though it is really tempting to see the possibility of your Steem doubling in numbers, be careful in investing your hard-earned money right away. Read the previous sentence again, I specifically put in "double in numbers", I did not use the phrase "double in value". Because doubling in quantity does not mean doubling in value. Since we are investing in cryptocurrency which is not fully used in our mainstream transactions, it is very important to consider Steem's value in terms of USD or any fiat currency that you are using. You will just lose more even if you double your Steem's holdings if its value against the USD or any fiat plunged more than double. Remember that investing is generally risky and do not fail in its first rule.

While it is not an exact science (or math if you like), having this rule handy is useful; especially when coupled with a wishful thinking that in due time, the money we have invested will double.

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To view or trade BEER go to steem-engine.

Hey @kapengbarako, here is your BEER token. Enjoy it!

Good post, useful information.
Thank you

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Thank you for your comment

Excellent article @kapengbarako 😀

You are really are a good author 😊👍

Thank you Chris for your kind words. I still have a lot to learn in writing. I actually rush myself most of the time and post without proofreading it first. :)

Time and patience are your best friend.

Yes, in the world of money and investment, time plays a big role, and patience is an important measure too.

How about the rule of 234?

In cryptocurrency space, investors & traders generally talk about reaping 10x of their initial investment. So instead of 72, using 234 (easy to remember 2-3-4) should make more sense ;)


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