What Is the Rule of 70? Definition, Example, and Calculation

What Is the Rule of 70?

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.

Formula and Calculation of the Rule of 70

• Obtain the annual rate of return or growth rate on the investment or variable.
• Divide 70 by the annual rate of growth or yield.

# of Years to Double an Investment = 70/Annual Rate of Return

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 
  

Rule of 70 vs. Real Growth

The rule evaluates investments but can also estimate other economic factors such as population growth or gross domestic product (GDP). The Rule of 70 is an estimate based on a forecasted growth rate. If future rates fluctuate, the original calculation will be inaccurate.

As of May 2024, the population of the United States was approximately 342 million. A 2020 prediction estimates that the U.S. population will grow at a rate of .62% annually. Using the estimation of the Rule of 70, the population of the U.S. will double in 113 years.

Real growth figures dispute the use of the Rule of 70 in estimating population growth. In 1955, the population of the United States was approximately 172 million and was estimated to double by 2025 based on actual population counts and rates of growth. If the Rule of 70 was used in 1955 to predict the doubling of the population when the growth rate was 1.57%, the population would have doubled by 1999. 

Compound Interest and the Rule of 70

Compound interest is calculated on the initial principal and the accumulated interest of previous periods. The rate at which compound interest accrues depends on the frequency of compounding. The higher the number of compounding periods, the greater the compound interest.

Compound interest is a feature in calculating the long-term growth rates of investments and the various rules of doubling. If the interest earned is not reinvested, the number of years it'll take for the investment to double will be higher than a portfolio that reinvests the interest earned.

The Rule of 70 and any other doubling rules include estimates of growth rates or investment rates of return. As a result, the rule can generate inaccurate results with its limited ability to forecast future growth.

The Bottom Line

The Rule of 70 is a calculation that provides an estimate, based on a constant growth rate, of how many years it takes for an investment to double in value. Investors may use this calculation to evaluate the investment returns of mutual funds and retirement portfolios.