Rule Of 70
Categories: Metrics
The “Rule of 70” is one of those "rules," like the Rule of 69, Rule of 69.3, and Rule of 72, that is designed to predict how long it’s going to take an investment to double. In fact, all those rules work pretty much the same way: we take our chosen number (in this case, 70) and divide it by the annual rate of return on our investment. The answer will tell us how many years it will take our investment to double. So...if we’ve got $2,000 invested at a 4.7% annual rate of return, 70/4.7 = 14.89, which means it’ll take almost 15 years for our $2k to become $4k.
What makes 70 better than 69 or 72 or any of the other doubling rules out there? Nothing, really; it’s just easy to remember. But word to the wise (and to your mother): none of these rules are foolproof. They can only give us estimates, since they can’t see into the future and tell us whether our rate of return is going to increase or decrease. They’re not fortune-telling rules, they’re doubling rules...and they’re more guidelines than rules, really. So while they can help us choose the right financial investments and plan for our future, we shouldn’t rely on them for 100% accuracy.
