Rule of 70 vs. Rule of 72
The Rule of 70 and Rule of 72 are similar in that they are both methods of calculating how long it will take for an investment to double in value.
The Rule of 70 is calculated by dividing 70 by the compound annual growth rate (CAGR), while the Rule of 72 is calculated by dividing 72 by the CAGR.
The main difference between the two rules is that the Rule of 70 is more accurate overall, but is more difficult to use from a mental math perspective.
For example, 70 is not divisible by 3, 4, 6, 8, 9, or 12, while 72 is.
For that reason, many prefer the Rule of 72 over the Rule of 70 as a more effective shortcut.
So, which rule should you use?
You can use either rule and get a close approximation.
However, if you do know the interest rate, it’s best to use the rule that can give you an easier estimation.
For instance, if your return is 7 percent, 10 percent, or 14 percent, the Rule of 70 would be easier to use because each number is cleanly divisible by 70.
You would estimate that the time it would take for an investment to double in value would be 10 years, 7 years, or 5 years, respectively.
Rule of 70 vs. Rule of 72 – Conclusion
The Rule of 70 and the Rule of 72 are both financial rules of thumb that can be used to estimate how long it will take for an investment to double in value.
The difference between the two rules is that the Rule of 70 uses a slightly more accurate estimate, while the Rule of 72 is a little easier to calculate.
In general, either rule can be used for a quick estimation, but if you need a more precise answer, it is best to use the Rule of 70.
What is the difference between the Rule of 70 and the Rule of 72?