Investing: What Is the Rule of 70?
What Is the Rule of 70?
By Chris B. Murphy
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.
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
● At a 3% growth rate, a portfolio will double in 23.33 years because 70/3 = 23.33
● At an 8% growth rate, a portfolio will double in 8.75 years because 70/8 = 8.75
● At a 12% growth rate, a portfolio will double in 5.8 years because 70/12 = 5.8
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