The Rule of 70 estimates how long it takes for something growing at an exponential rate to double. It can be used for investments, GDP growth, inflation, and more. The formula is 70 divided by the growth rate, but it is not always reliable.
The Rule of 70 is a quick rule of thumb used to determine how long it will take for something that is growing at an exponential rate to double. It can be used to find out how many years it will take for an investment to double, when a nation’s gross domestic product (GDP) can be expected to double at a given growth rate, and so on. Closely related are the rules of 69 and 72, which are based on the same basic formula as the rule of 70, with a different number attached.
According to the rule of 70, it is possible to find out how many years it will take for something to double by dividing the number 70 by the growth rate. For example, if someone deposits some money in the bank at an interest rate of 5%, it would take 14 years for the investment to double, because 70 divided by 5 equals 14. Similarly, if a country is experiencing a rate With a GDP growth rate of 14%, it would take the country’s GDP five years to double, and that country would be the envy of much of the world. The actual doubling rate can vary slightly, which is why people sometimes prefer to use 69 or 72 instead of 70.
Another way that the rule of 70 can be used is to look at the ways in which the purchasing power of the currency will change in response to inflation. If a country had an inflation rate of 10%, for example, it would take seven years for the currency to be worth half. For example, if it took $20 US dollars (USD) to buy a widget in 2030, and the United States had a constant inflation rate of 10%, it would require $40 US dollars in 2037.
Things like interest rates, inflation, and other growth rates rarely remain conveniently static as they have in the previous examples. As a result, the rule of 70 is not always completely reliable. These rates can change, disregarding the calculation. However, this rule provides a quick reference that people can use when making decisions. It can also be useful to illustrate how exponential growth works for people who are exploring options for bank accounts that earn different amounts of interest or who are trying to figure out how to apply payments to debts such as credit cards, more efficiently.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
