In trading and investing, the rule of 70 is a method used for estimating the doubling time for capital based on investment or interest rates of return.
What is the Rule of 70?
The rule number is divided by the rate of return percentage per period (years is the most common used) to obtain the approximate number of periods needed to double the money.
While more advanced scientific calculators and Excel spreadsheets have functions to calculate accurate needed doubling time, this rule is useful for quick calculations on paper or in your head when needed.
Rule of 70 formula
Number of Years to Double = 70 / Annual Rate of Return
For example at a +10% rate of annual return it takes 7 years for capital to double.
70 divided by 10% returns = 7 years to double capital or 70 / 10 = 7.
The rule of 72, and the rule of 69.3 are other common formulas used but choice of the exact number is mostly a matter of preference. The number 69 is more accurate for continuous compounding of capital returns and 72 works for common interest payment circumstances and is more easily divisible. There are many variations to the rules that can improve accuracy but the rule of 70 is one of the best short cuts.
