Understanding the Rule of 70
What is the Rule of 70?
In the financial world, the Rule of 70 is a valuable tool or formula used to estimate how long it will take for an investment or economy to double in size. This can be especially helpful to figure out how many years it will take for your investment to get the desired growth that you want from it. While not completely precise, it offers a much quicker and simpler alternative to complex mathematical calculations. The rule is most accurate when applied to growth rates between 2% and 10% and, for rates outside that range, more detailed methods may be preferable. The Rule of 70 is also known as the Doubling Time formula.
How to calculate the Rule of 70?
The Rule of 70 formula is expressed with the following:
Doubling time (years) = 70/annual growth rate
To demonstrate how this works, consider an individual who wants to know how long it will take for their investment to double in value if it grows at a 5% annual rate:
Doubling time (years) = 70/5%
Doubling time (years) = 14
This calculation shows that, with a consistent 5% annual growth rate, the investment, whether in stocks, bonds, or another asset, would double in approximately 14 years.
Conclusion
While the Rule of 70 can’t provide you an exact forecast, it serves as a quick tool to estimate the approximate amount of time it will take for an investment to double in size. Because of its simplicity, it’s a strategy to offer fast insights for investment decision-making.
Looking to deepen your understanding of your investments beyond the Rule of 70? We recommend consulting a financial professional! Schedule a complimentary meeting with us today.
SmartAsset – “What Is the Rule of 70, and How Do You Use It?” article
