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.)

FAQs

What Is the Rule of 70? ›

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.

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How does the rule of 70 work? ›

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.

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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.

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What does rule of 70 mean in population? ›

The rule of 70 is a way to estimate the time it takes to double a number based on its growth rate. 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.

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What is the rule of 70 is an easy way to estimate? ›

The rule of 70 approximates how long it will take for the size of an economy to double. 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.

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Is the rule of 70 or 72 more accurate? ›

According to the rule of 72, you'll get 72 / 4 = 18 years. If you use the rule of 70, you'll get 70 / 4 = 17.5 years. Finally, if you do the original logarithm calculation, it'll actually take you about 17.501 years to double your money. So, the rule of 70 is a better estimate.

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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.

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What is the rule of 70 7%? ›

The Rule of 70 helps you estimate how many years it will take for your investment to double. For example, if the interest rate is 7%, using the Rule of 70, you can estimate that your investment will double in approximately 10 years (70 divided by 7).

Is the Rule of 72 exact? ›

The Rule of 72 is derived from a more complex calculation and is an approximation, and therefore it isn't perfectly accurate. The most accurate results from the Rule of 72 are based at the 8 percent interest rate, and the farther from 8 percent you go in either direction, the less precise the results will be.

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What is the $1000 a month rule for retirement? ›

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

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Do I really need 70% of my income in retirement? ›

The 70-80% Spending Rule

Retirement advisors at Fifth Third Securities generally agree that a good rule of thumb for estimating your future spending is to multiply your current monthly spending by 70-80%.

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Why the 4 rule no longer works for retirees? ›

The 4% rule comes with a major caveat: It's not really a “rule” since everyone's situation is different. If you have a large retirement investment portfolio, you might not need to spend 4% of it every year. If you have limited savings, 4% might not come close to covering your needs.

What is the 100 age rule? ›

This principle recommends investing the result of subtracting your age from 100 in equities, with the remaining portion allocated to debt instruments. For example, a 35-year-old would allocate 65 per cent to equities and 35 per cent to debt based on this rule.

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What is the 114 rule? ›

Similarly, the rule of 114 will tell you how fast your money will triple. In this case, you need to divide 114 by the annual rate of return. For instance, you invest Rs 1 lakh in an instrument that earns 12% return per annum. If you divide 114 by 12, you will see that it will take 9.5 years to triple your investment.

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Does the rule of 72 always work? ›

For higher rates, a larger numerator would be better (e.g., for 20%, using 76 to get 3.8 years would be only about 0.002 off, where using 72 to get 3.6 would be about 0.2 off). This is because, as above, the rule of 72 is only an approximation that is accurate for interest rates from 6% to 10%.

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Does the rule of 72 apply to debt? ›

Yes, the Rule of 72 can apply to debt, and it can be used to calculate an estimate of how long it would take a debt balance to double if it's not paid down or off.

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