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

FAQs

Rule of 70 Vs. Rule of 72: Definition, How They Work, and Example? ›

The rule of 72 is best for annual interest rates. On the other hand, the rule of 70 is better for semi-annual compounding. For example, let's suppose you have an investment that has a 4% interest rate compounded semi-annually or twice a year. According to the rule of 72, you'll get 72 / 4 = 18 years.

The Rule of 70 Formula

Hence, the doubling time is simply 70 divided by the constant annual growth rate. For instance, consider a quantity that grows consistently at 5% annually. According to the Rule of 70, it will take 14 years (70/5) for the quantity to double.

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.

The Rule of 70

For example, assume an investor invests $10,000 at a 10% fixed annual interest rate. He wants to estimate the number of years it would take for his investment to grow to $20,000. He uses the rule of 70 and determines it would take approximately seven (70/10) years for his investment to double.

Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home. The ARV of a property is the amount a home could sell for after flippers renovate it.

‍To give a better sense of what this means in practicality, we thought it would help to run through an example: A properties ARV is $200,000 and it needs an estimated $30,000 in repairs. The 70% rule states on this occasion, that an investor should pay $110,000. ($200,000 x 70%) – $30,000 = $110,000.

The rule of 72 is best for annual interest rates. On the other hand, the rule of 70 is better for semi-annual compounding. For example, let's suppose you have an investment that has a 4% interest rate compounded semi-annually or twice a year. According to the rule of 72, you'll get 72 / 4 = 18 years.

The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase.

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.

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.

How do you use the rule of 70 in a sentence? ›

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.

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.

The Rule of 70 helps you estimate how many years it will take for your investment to double. For example, if the interest rate is 7%, using the Rule of 70, you can estimate that your investment will double in approximately 10 years (70 divided by 7).

The Rule of 72 is a quick, useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return. Alternatively, it can compute the annual rate of compounded return from an investment, given how many years it will take to double the investment.

The 70% rule for retirement savings says that you can estimate your future retirement spending by multiplying your post-tax income by 70%. For example, if your income is currently $72,000 per year after taxes, your future annual retirement spending would be around $50,400, or $4,200 per month.

The 70% rule for retirement savings can help you estimate the amount of income you may need in retirement. It says you'll need 70% of your pre-retirement, post-tax income to retire comfortably.

The 70% rule is a basic quick calculation to determine what the maximum price you should offer on a property should be. This calculation is made by times-ing the after repaired value (“ARV”) by 70% and then subtracting any repairs needed. This gives you a 30% margin to cover your profit, holding costs & closing costs.