Rule of 70

APRIL 21ST, 2017

I love the ‘Rule of 70’.

Basically the Rule of 70 makes it easy to calculate how long it will take to double your money at a given interest rate (assuming interest payments are re-invested). For example, let’s say you invest $10,000 in a security with a 10% annual rate of return; the amount of time it takes to double your money is 70/10 = approximately 7 years. If you get a 7% rate of return, the time needed to double your money is 70/7 = approximately 10 years. An annual return of 7% may not seem much, but most people don’t understand that a 7% return means you are doubling your money in a decade.

Additionally, you can use the rule to figure out what rate of return you need to double your money in a certain period. For example, what rate of return do I need to realize in order to double my money in 10 years? 70/10 = approx 7% required rate of return.

This rule can be applied to compounding interest, GDP growth estimates, Inflation growth estimates, etc. Basically, it can be applied to any variable that has a fairly reliable constant growth rate.