The rule of 70 is a calculation to determine how many times it will take for your investment capital or money to double given a specified rate of return. Rule of 70 is an estimate based on forecasted growth rates. If the rates of growth fluctuate, the calculation maybe inaccurate.
What Is the Rule of 70
The rule of 70 is a means of estimating the number of years it takes for an investment or your money to double it is called Rule of 70. From the Rule of 70, it is ascertained that the money/capital that has been invested in any share market, property, gold, commodity or any other investment scheme will double in the specified rate of return time.
It is also compared with this rule that how much time will it take for money to grow from investment and annual compound interest rate.
Difference Between the Rule of 70 and the Rule of 72
|Rule of 70||Rule of 72|
|The rule of 70 is a means of estimating the number of years it takes for an investment or your money to double it is called Rule of 70.||The rule of 72 is a simple method to determine the amount of time investment would take to double, given a fixed annual interest rate.|
|Divide 70 by the annual rate of growth & yield.||Divide 72 by the annual rate of return.|
|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.||The rule of 72 is a simple method to determine the amount of time investment would take to double, given a fixed annual interest rate.|
|Number of Years to Double = 70÷Annual Rate of Return||Rule of 72=ln(e)=1|
The Formula for the Rule of 70 Is
Number of Years to Double = 70÷Annual Rate of Return
How to Calculate the Rule of 70
- Annual rate of return & growth rate on the investment
- Divide 70 by the annual rate of growth
Example of the Rule of 70
|Rule of 70||Annual Growth Rate||Years To Double|
At 2% growth rate, it will take 35 years for the portfolio to double because 70÷2 = 35 years.
At 7% growth rate, it will take 10 years for the portfolio to double because 70÷7 = 10 years.
At 9% growth rate, it will take 7.7 years for the portfolio to double because 70÷9 = 7.77 years.
At 11% growth rate, it will take 6.3 years for the portfolio to double because 70÷11 = 6.36 years.
At 14% growth rate, it will take 5 years for the portfolio to double because 70÷14 = 5 years.
At 17% growth rate, it will take 4.1 years for the portfolio to double because 70÷17 = 4.11 years.
Limitations of the Rule of 70
As we have seen above that rule of 70 tells that at what annual growth rate your investment money/capital will double in that time.
But from this rule after a limit, you cannot find out how much growth will be in the future after a limit.
When Is the Rule of 70 Useful?
Rule of 70 is a formula by which to measure the return calculation of your investment and fund, in the coming time the investment money / capital will double.
With this formula and rule, we are also used to measure investment returns in the stock market / stock market, bond market, forex market, commodity market, index market (finance market).
Rule of 70 constantly works only when return comes time to time otherwise the value of investment money/capital is not accurate.
With this formula, it is well calculated that the money invested along with the job will be at the time of retirement. According to which investment and money management can be done well.
This rule is very helpful to the investor in calculating the investment return in simple language, so that the investor manages his money in an easy way without solving any complex math.
The investor also knows from this roulette that the returns coming from the finance market (stock market, forex market, index fund, mutual fund, and commodity market) would have been much or would double in how much time.
According to this rule, we can increase or decrease our investment.
When Can Use the Rule of 70 Formula?
Rule of 70 is used in different situations like; Mutual funds, forex market, index market, stock market/stock market, economy growth rate, bond etc.
In all these financial markets, this rule helps the investor that which investment to invest so that the investment money will be doubled in the coming time.
With this rule, by calculating your investment portfolio, your future returns and money management can be increased quickly.
Differences Between the Rules of 70, 72 and 69
|Rule 70||Rule 72||Rule 69|
|Semiannual compounding interest rates||Annual interest rates||Accurate for continuous Compounding interest rate.|
|Number of Years to Double = 70÷Annual Rate of Return||Rule of 72=ln(e)=1||(69÷Interest Rate) + 35|
Rule of 70
- 70÷Growth % = Doubling Time
- 70÷Doubling time = Growth%
Rule of 70 Versus Real Growth
Remember, rule of 70 only forecasts growth. If the growth fluctuates every month, semiannual or annual, then the forecast value of this formula is not correct. This rule does not give any guidance on compounding, how to deal with your investment in interest and exponential growth.
- The rule of 70 is a calculation to determine how many times it will take for your investment capital or money to double given a specified rate of return.
- Rule of 70 is an estimate based on forecasted growth rates. If the rates of growth fluctuate, the calculation maybe inaccurate.
- Investors can use this rule of 70 to evaluate various investments including Stock Market, Forex Market, Index Market, Bond, Commodity Market, Mutual Fund returns and the growth rate for a future portfolio.
From this rule, it can only be found out that in the coming time such a long term return can come on the consistence return. As soon as there is a change in the growth %, then the result value also becomes inaccurate. This rule of 70 does not work well in instant value change.
Difference Between Compound Interest and the Rule of 70
|Compound Interest||Rule of 70|
|Compound interest accumulated interest of previous periods of a deposit or loan.||Rules of doubling|
|Compound interest depends on the compounding, the higher the number of compounding periods, the greater the compound interest.||If the rates of growth fluctuate, the calculation maybe inaccurate|
|Compound interest is calculating the long-term growth rates of money/capital investments.||Semiannual compounding interest rates|
Compounding interest measures the growth of capital/money while rule of 70 helps in calculation of how much time will double the investment money/capital.
Read Also: How to Start Private Limited Company