What Is the Rule of 70 Used For?
Learn the practical Rule of 70, a simple tool to quickly estimate how long it takes for anything growing to double in size.
The Rule of 70 is a straightforward financial concept that quickly estimates the time it takes for an investment, population, or any quantity to double. This simple tool helps individuals understand the implications of compounding growth. It serves as a practical mental shortcut for evaluating exponential increase, making complex calculations more accessible.
Defining the Rule of 70
The Rule of 70 is a mathematical formula providing an approximate estimate of the time required for a variable to double, given a constant annual growth rate. It is often referred to as the “doubling time formula” because it quantifies how long it takes for a value to reach twice its original amount. This rule specifically applies to compound growth, where growth in each period includes prior accumulated growth. It simplifies exponential growth, making it easier to project future values.
How the Rule of 70 Works
To calculate, divide 70 by the annual growth rate (expressed as a whole number percentage) to find the approximate number of years for a quantity to double. For instance, an investment growing at a consistent annual rate of 7% would double in 10 years (70/7). The growth rate should always be entered as a percentage without the percent sign; for example, use “5” for 5%.
If a population grows at 2% annually, applying the Rule of 70 (70 divided by 2) indicates it would approximately double in 35 years. Similarly, a savings account earning a 5% annual return would take roughly 14 years (70 divided by 5) for money to double. While the Rule of 70 offers an approximation, it is remarkably accurate for typical growth rates in finance and economics.
Common Applications of the Rule of 70
The Rule of 70 finds widespread application across various financial and economic scenarios. In personal finance, it helps individuals understand how quickly their investments might grow or how inflation can erode purchasing power. For example, if the average historical stock market return is around 10% annually, the Rule of 70 suggests an investment in the broader market could double in approximately seven years (70/10). Conversely, if inflation averages 3% annually, the purchasing power of money could halve in about 23.3 years (70/3).
Economists use the Rule of 70 to estimate how long it takes for a country’s Gross Domestic Product (GDP) to double, providing insight into economic growth trajectories. If a nation’s economy grows at 3% per year, its GDP would roughly double in 23 years. This helps compare the long-term economic prospects of different countries. The rule is also applied in demographic studies to project population doubling times, informing resource planning and social development strategies. If a region’s population grows at 1% annually, it would double in about 70 years.