What Is the Rule of 70?
The rule of 70 calculates the years it takes for an investment to double in value. It is calculated by dividing the number 70 by the investment's growth rate. The calculation is commonly used to compare investments with different annual interest rates.
Key Takeaways
- The Rule of 70 is a calculation that determines how many years it takes for an investment to double in value based on a constant rate of return.
- Investors use this metric to evaluate various investments, including mutual fund returns and the growth rate for a retirement portfolio.
- The Rule of 70 is an estimate that assumes a constant growth rate that may fluctuate, and the calculation may prove inaccurate.
Formula and Calculation of the Rule of 70
- Obtain the annual rate of return or growth rate on the investment or variable.
- Divide 70 by the annual rate of growth or yield.
# of Years to Double an Investment = 70/Annual Rate of Return
What the Rule of 70 Can Tell You
The Rule of 70 helps investors determine the future value of an investment. Although considered a rough estimate, the rule provides the years it takes for an investment to double. The Rule of 70 is an accepted way to manage exponential growth concepts without complex mathematical procedures.
Investors can use this metric to compare investments with different growth rates or annual returns. If the calculation yields a result of 15 years, an investor looking to double their money in 10 years could make allocation changes to their portfolio to attempt to increase the rate of return.
Examples of How to Use the Rule of 70
- Ata3%growthrate,a portfoliowill double in 23.33 years because 70/3 = 23.33
- Atan8%growthrate, a portfolio will double in 8.75yearsbecause 70/8 = 8.75
- Ata12%growthrate,a portfolio will double in 5.8 years because70/12 = 5.8
Rule of 70 vs. Real Growth
The rule evaluates investments but can also estimate other economic factors such as population growth or gross domestic product (GDP). The Rule of 70 is an estimate based on a forecasted growth rate. If future rates fluctuate, the original calculation will be inaccurate.
As of May 2024, the population of the United States was approximately 342 million. A 2020 prediction estimates that the U.S. population will grow at a rate of .62% annually. Using the estimation of the Rule of 70, the population of the U.S. will double in 113 years.
Real growth figures dispute the use of the Rule of 70 in estimating population growth. In 1955, the population of the United States was approximately 172 million and was estimated to double by 2025 based on actual population counts and rates of growth. If the Rule of 70 was used in 1955 to predict the doubling of the population when the growth rate was 1.57%, the population would have doubled by 1999.
Compound Interest and the Rule of 70
Compound interest is calculated on the initial principal and the accumulated interest of previous periods.The rate at which compound interest accrues depends on the frequency of compounding. The higher the number ofcompoundingperiods, the greater the compound interest.
Compound interest is a feature in calculating the long-term growth rates of investments and the various rules of doubling. If the interest earned is not reinvested, the number of years it'll take for the investment to double will be higher than a portfolio that reinvests the interest earned.
The Rule of 70 and any other doubling rules include estimates of growth rates or investment rates of return. As a result, the rule can generate inaccurate results with its limited ability to forecast future growth.
What Is a Limitation of the Rule of 70?
The Rule of 70 assumes a constant rate of growth or return. As a result, the rule can generate inaccurate results since it does not consider changes in future growth rates.
How Is the Rule of 70 Used in Economics?
The Rule of 70 can estimate how long it would take a country's gross domestic product (GDP) to double. Instead of estimating compound interest rates, the GDP growth rate is the divisor of the rule. For example, if the growth rate for China is estimated as 10%, the Rule of 70 predicts it would take seven years, or 70/10, for China's real GDP to double.
What Is the Difference Between the Rule of 70 and the Rules of 69 and 72?
The Rule of 72 or the Rule of 69 may also be used. The function is the same as the rule of 70 but uses 72 or 69, respectively, in place of 70 in the calculations. The Rule of 69 is often considered more accurate when addressing continuous compounding processes, and 72 may be more accurate for less frequent compounding intervals.
The Bottom Line
The Rule of 70 is a calculation that provides an estimate, based on a constant growth rate, of how many years it takes for an investment to double in value. Investors may use this calculation to evaluate the investment returns of mutual funds and retirement portfolios.
FAQs
The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.
What is the rule of 70 and how is it calculated? ›
The Rule of 70 Formula
Hence, the doubling time is simply 70 divided by the constant annual growth rate. For instance, consider a quantity that grows consistently at 5% annually. According to the Rule of 70, it will take 14 years (70/5) for the quantity to double.
What is the rule of 70 population example? ›
Explanation of the Rule of 70
The formula is as follows: Take the number 70 and divide it by the growth rate. The result is the number of years required to double. For example, if your population is growing at 2%, divide 70 by 2. The result is 35; it will take 35 years for your population to double at a 2% growth rate.
What is the Rule of 72 definition and calculation? ›
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.
How do you use the 70 rule? ›
Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.
How does the rule of 70 work for retirement? ›
The 70% rule for retirement savings can help you estimate the amount of income you may need in retirement. It says you'll need 70% of your pre-retirement, post-tax income to retire comfortably.
Why is the rule of 70 important? ›
The rule of 70 offers a way to figure out the doubling time of an investment. In other words, it shows you how many years it will take for your initial deposit to double in size. You'll need to know the specific rate of return in order to use the rule of 70 or doubling time formula.
What is the rule of 70 GDP example? ›
The number of years it takes for a country's economy to double in size is equal to 70 divided by the growth rate, in percent. For example, if an economy grows at 1% per year, it will take 70 / 1 = 70 years for the size of that economy to double.
What are the key assumptions underlying the rule of 70? ›
The Rule of 70 assumes a constant rate of growth or return. As a result, the rule can generate inaccurate results since it does not consider changes in future growth rates.
What can the rule of 70 be used to calculate quizlet? ›
What is the rule of 70? is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double. the quantity of capital per hour worked and the level of technology. the level of GDP attained when all firms are producing at capacity.
The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable's growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.
What is the difference between the rule of 70 and the Rule of 72? ›
The rule of 72 is best for annual interest rates. On the other hand, the rule of 70 is better for semi-annual compounding. For example, let's suppose you have an investment that has a 4% interest rate compounded semi-annually or twice a year. According to the rule of 72, you'll get 72 / 4 = 18 years.
How can I double my money in 5 years? ›
So, if you have Rs 10 lakh right now, that would increase to around Rs 16 lakh over the next five years. Further, remember that you should invest at least one-third of your money in equity to enjoy inflation-adjusted income during retirement. Moreover, you must limit your withdrawals to 6 per cent of your corpus.
How do you calculate a 70% rule? ›
The 70% rule is a basic quick calculation to determine what the maximum price you should offer on a property should be. This calculation is made by times-ing the after repaired value (“ARV”) by 70% and then subtracting any repairs needed. This gives you a 30% margin to cover your profit, holding costs & closing costs.
What is the rule of 70 in population? ›
To calculate this, you would use the rule of 70. This rule calculates the doubling time by dividing 70 by the growth rate. You might notice this is quite similar to the rule of 72, which has you divide the number 72 by the annual rate of return.
What is the 70 percent rule for productivity? ›
The 70 percent rule suggests working at around 70% of my maximum capacity, leaving room for increased demands and unexpected challenges. By reserving this extra capacity, I can handle temporary workload spikes without burning out or compromising my work-life balance.
What is the rule of 70 in reasoning? ›
The rule of 70 is an easy method of estimating how quickly a variable will double if you know its annual growth rate. If a variable is growing at a rate of x% per period, you simply take 70 and divide it by x. The rule of 70 is useful for all sorts of applications.
What is the rule of 70 is a formula for determining the approximate? ›
The "rule of 7 0 " is a formula for determining the approximate number of Oyears that it would take for a value ( like real GDP ) to expand 7 0 times. years that it would take for a value ( like real GDP ) to double. times a value ( like real GDP ) is a multiple of 7 0 .
Where does the 70 in the rule of 70 come from? ›
The rule of 70 (and 72) comes from the natural log of 2 which is 0.693.. or 69.3%. Basically this is rounded to 70 (or 72) to make doing the math in your head easier. It's not 100% accurate but usually when you are asking about the doubling time of a rate by quick mental estimate, a little error doesn't matter.
