Skip to main content

Bias For Clarity

By
Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea
Post a Comment

Quick Math - The Rule of 72

Image
By
1 U.S.A dollar banknotes

Have you ever wondered how long it would take for you to double your money? The rule of 72 is a neat math trick to calculate this. This simple formula requires only one input, your expected rate of return.

Just divide it by 72 and bam! You got it.

# of Years to Double = 72/Annual Rate of Return 

Putting the Rule in Action - Danny's Double

Danny has $5,000 to invest, with the goal of one day growing it to $10,000. He's planning on investing into a portfolio of low-cost stock ETFs.

Stocks typically averages an annual return of 7%, assuming he'll experience the same, how long would it take for his money to double?

Using the rule of 72, we find that it'll take about:

72/7 = 10.29 Years

 So easy!

Flipping it Around

10 years is a long time, Danny was hoping to double his money in 5 years.

Luckily, we can flip the rule around to find the return he'd need to achieve this.

Annual Rate of Return = 72/# of Years to Double

 Plugging in the numbers, we find Danny will need a return of:

72/5 = 14.4% 

 That's a pretty high return, even for stocks. Not impossible but definitely not something to count on. Danny's best bet would be to save more instead of hoping for higher than average returns.

Conclusion

The rule of 72 is a great tool, but it's not perfect, it's simply a rule of thumb. So for serious financial planning, you'll want the most accurate numbers. Though not fully accurate, it does get pretty darn close, especially when it comes to lower rates.

Rate of ReturnRule of 72
(Years)		Exact Number
(Years)		Accuracy Rate
1%7269.6696.75%
2%363597.22%
5%14.414.2198.68%
10%7.27.2799.04%
20%3.63.894.74%
50%1.441.7184.21%
100%0.72172.00%

















Labels:

Comments

Post a Comment

Popular posts from this blog

The Art of Giving Feedback

By
Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 
1 comment
Read more

Step One is Knowing

By
In school, we listen to our teachers. At home, our parents. Throughout our childhood, following instructions is praised and rewarded. When we're young, there's value in this. We don't understand how the world works quite yet, so guidance can be lifesaving.  The bias to just accept obviously has drawbacks. Insert old jumping off a bridge adage .  This conditioning is especially strong for kids from lower income households. Their parents are more likely in working class jobs involving strict order-taking. Parents of middle-class households tend to be knowledge workers where influence is essential.  Studies have shown kids from middle-income households are more willing to negotiable with their teachers. They learn from their parents that things are not set in stone. This leads to better grades and learning outcomes when compared to their lower income counterparts who don't negotiable.  In business, if we simply accept things as they are, we would never innovate. In work, w
Post a Comment
Read more

Bias For Clarity

By
Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea
Post a Comment
Read more