Rule of 70 Vs. Rule of 72: Definition, How They Work, and Example (2024)

FAQs

What is the difference between rule of 70 and Rule of 72? ›

The Rule of 70, while generally more accurate, is less convenient for mental calculations due to the indivisibility of 70 by common numbers such as 3, 4, 6, 8, 9, or 12. Conversely, the Rule of 72, being divisible by those numbers, is often preferred for its ease of use despite being slightly less accurate.

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.

For example, if the growth rate for China is estimated as 10%, the Rule of 70 predicts it would take seven years, or 70/10, for China's real GDP to double.

What Is the Rule of 72? The Rule of 72 is a simple way to determine how long an investment will take to double given a fixed annual rate of interest. Dividing 72 by the annual rate of return gives investors a rough estimate of how many years it will take for the initial investment to duplicate itself.

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.

The Rule of 72 applies to compounded interest rates and is reasonably accurate for interest rates that fall in the range of 6% and 10%. The Rule of 72 can be applied to anything that increases exponentially, such as GDP or inflation; it can also indicate the long-term effect of annual fees on an investment's growth.

As a rate of return, long-term mutual funds can offer rates between 12% and 15% per year. With these mutual funds, it may take between 5 and 6 years to double your money.

Errors and Adjustments

The rule of 72 is only an approximation that is accurate for a range of interest rate (from 6% to 10%). Outside that range the error will vary from 2.4% to 14.0%. It turns out that for every three percentage points away from 8% the value 72 could be adjusted by 1.

Let's say you estimate it will take $40,000 to renovate your new home before you resell it. Subtract that $40,000 from the $154,000 figure and you are left with $114,000. That figure is the estimated maximum price you should spend on your new home, according to the 70% rule.

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.

What's the “rule of 70?” The rule of 70 is an easy method of estimating how quickly a variable will double if you know its annual growth rate. If a variable is growing at a rate of x% per period, you simply take 70 and divide it by x. The rule of 70 is useful for all sorts of applications.

Rule of 70: Divide 70 by the annual rate of return to estimate the number of years it takes for your investment to double. Rule of 72: Divide 72 by the annual rate of return to estimate the number of years it takes for your investment to double.

The Rule of 72 is a convenient method to estimate the approximate time for invested capital to double in value. By merely taking the number 72 and dividing it by the rate of return (or interest rate) expected to be earned, the output is the approximate number of years for an investment to double.

The rule of 72 can help you get a rough estimate of how long it will take you to double your money at a fixed annual interest rate. If you have an average rate of return and a current balance, you can project how long your investments will take to double.

Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.

Rule of 70: the employee's age plus years of continuous, full-time service equal 70 or more, and the employee is at least age 55, with at least ten years of continuous, full-time service.

The reason why the rule of 70 is popular in finance is because it offers a simple way to manage complicated exponential growth. It breaks down growth formulas into a simple equation using the number 70 alongside the rate of return.