6 Math Tricks That Will Make Your Life Easier

Posted: December 10, 2011 in Best Practices

You’re on the trading floor, trying to price out if a 15-year bond issued by General Electric will generate the returns needed to placate your investors.

Bad news, your calculator is dead and the trader from Cantor Fitzgerald is readying to signal his buy. What to do?

Well, if all you need to do is double the investment in five-years, you’re in luck.

That’s probably not the case, and GE probably isn’t issuing 15-year debt.  But we compiled a list of six math tricks that might just come in handy.

The Rule of 72

Need an easy way to determine how long it will take to double your returns? Simply divide the number 72 by your projected growth rate.

So, if your returns are increasing by 10% per year, it will take 7.2 years for them to double in size.

The Rule of 115

If you’re more inclined to triple your returns, because you’re not as risk averse (or perhaps your time horizon is just a tad bit farther out), simply take the number 115 and divide it by your growth rate. This will give you the amount of time it will take to triple your returns.

The Rule of 70

So, if your returns are increasing by 10% per year, it will take 11.5 years for them to triple in size.

The rule of 70 dictates how long it will take for inflation to halve the value of a dollar. Simply divide 70 by your expected rate of inflation.

For example, if you expect 3% inflation, then divide 70 by 3. At that rate, it will take 23.3 years before the value of your money is worth half what it is today. 

Converting your salary to an hourly figure

You’re a salaried employee and trying to figure out how much that wage earns you an hour, maybe for that part-time job you’re considering taking on. Take your salary, drop the last three zeros and then divide by the number two.

So if you earn $40,000, you’re left with $20 an hour. Numbers work best if you’re only working a 40 hour week.

Multiplying by 11

You never know when you’ll be pricing out an 11-year fixed income product, so this might come in handy. When multiplying a figure by the number 11, follow this pattern: leave the last and first digits alone, then sum each and every pair of digits next to each other (this makes most sense when seen in example):

1. 4,281 x 11 becomes the following digits: (4)(4+2),(2+8)(8+1)(1) or 47,091

When the sum of a pair is greater than 10, carry that digit to the next left pair (as seen above, where 2+8 was 10)

2. Let’s try something harder. 9,621,576,521 x 11 becomes: (9)(9+6),(6+2)(2+1)(1+5),(5+7)(7+6)(6+5),(5+2)(2+1)(1) or 105,837,341,731

Asset Allocation by Age

This one really isn’t a math trick, so much as it is a rule of thumb…

Don’t have a financial planner to walk you through asset allocation? A simple way to find out is to subtract your age from the number 120, the number remaining is the percentage of your portfolio that should be in stocks.

For instance, if you’re 50, you should be keeping 70% of your holdings in stocks with the remaining 30% in fixed income products.

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