What is the rule of 70 if given numbers can you figure out the answer?

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 does the rule of 70 mean?

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.

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? (2024)

Investing

ByJacqueline DeMarco

Updated on November 24, 2021

Reviewed by

Robert C. Kelly

Reviewed byRobert C. Kelly

Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.

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Key Takeaways

The rule of 70 is a basic formula used to estimate how long it will take for an investment to double in value.
To use the rule of 70, simply divide 70 by the annual rate of return.
The rule of 70 only provides an estimate, not a guarantee, of an investment’s growth potential.

Definition and Examples of the Rule of 70

Investors typically use the rule of 70 to predict the number of years it takes for an investment to double in value based on a specific rate of return (an investment’s gain or loss over a period of time).

The rule of 70 is commonly used to compare investments with different annual interest rates. This makes it simple for investors to figure out how long it may be before they see similar returns on their money from each of the investments.

Let’s say an investor decides to compare rates of return on the investments in their retirement portfolio to get an idea of how long it may take their savings to double. To calculate the doubling time, the investor would simply divide 70 by the annual rate of return. Here’s an example:

At a 4% growth rate, it would take 17.5 years for a portfolio to double (70/4)
At a 7% growth rate, it would take 10 years to double (70/7)
At an 11% growth rate, it would take 6.4 years to double (70/11)
Alternate name: Doubling time

How the Rule of 70 Works

Now that you’ve seen the rule of 70 in action, let’s break down the formula so you understand how to apply the rule of 70 to your own investments.

Again, calculating the rule of 70 is pretty straightforward. All you do is divide 70 by the estimated annual rate of return to find out how many years it’ll take for an investment to double in size. For the calculation to work properly, you’ll need to have at least an estimate of the investment’s annual growth or return rate.

Do I Need the Rule of 70?

Keep in mind that the rule of 70 is a rough estimate, but it can come in handy if you want a more concrete way of looking at the potential of a retirement portfolio, mutual fund, or other investment than the interest rate alone could provide. Knowing the number of years it could take to reach a desired value can help youplan which investments to choose for your retirement portfolio, for example.

Let’s say you wanted to pick a precise mix of investments with the potential to grow to a certain value by the time you retire in 20 years. You could use the rule of 70 to calculate the doubling time for each investment under consideration to see if it could help you reach your savings goals by the time you retire.

Note

The rule of 70 has other applications outside of the investment space. For example, the rule of 70 can be used to predict how long it would take for a country's real GDP to double.

Alternatives to the Rule of 70

The rule of 69 and the rule of 72 are two alternatives to the rule of 70. They differ in their accuracy for investments with different compounding frequencies (which measure how often your interest compounds). Both calculations function similarly to the rule of 70, except they divide the annual rate of return by 69 and 72, respectively, to derive the doubling time.

In general, the rule of 69 is considered to be more accurate for calculating doubling time for continuously compounding intervals, especially at lower interest rates. The rule of 70 is deemed more accurate for semi-annual compounding, while the rule of 72 tends to be more accurate for annual compounding.

Pros and Cons of the Rule of 70

While the rule of 70 has some impressive benefits, it also has some downsides:

Pros	Cons
Strong investment growth prediction model	Only an estimate
Straightforward formula	Relies on flawed assumptions

Pros Explained

Strong investment growth prediction model. The rule of 70 makes it easy to estimate the number of years it may take for an investment to double in value.
Straightforward formula. To use the rule of 70, all you have to do isdivide 70 by the annual rate of return.

Cons Explained

Only an estimate. While the rule of 70 can provide a well-informed projection of how long it may take an investment’s value to double, the calculation is only an estimate. In addition, that estimate can be thrown off by fluctuating growth rates.
Relies on flawed assumptions. Another reason the rule of 70 isn’t always accurate is because it assumes an investment compounds continuously. However, most financial institutions calculate interest less frequently, so this assumption is inherently flawed when it comes to the rule of 70 and its ability to accurately predict growth. (The rule of 69 may be more accurate for continuously compounding investments.)

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