Welcome to this article where we will be discussing What Is The Rule Of 70? So that you can have knowledge about Rule 70. So without wasting any more time let’s start the topic.
As we know that investment is one of the best methods to saving your money in the best place and you will get some % of that money in your account, and the best part is you can withdraw your money at any time, so it will be best to invest money.
An investment is a mechanism that is used for generating future income including bonds, stocks, business or real estate property that can return you more money.
What Is The Rule Of 70?
Rule Of 70 means estimating the years in which you will get double the money of investment, which means that if you invest 1500 rupees in any business or company and you will get 3000 after 2 years, that 2 years is known as Rule of 70.
Rule of 70 is a calculation of any investment that makes your money double by the specified rate of return.it is used for comparing investment with different annual compound interest rates that how long it will take to grow investment.
The rule of 70 helps the investors to know what will be the value of an investment in future. It’s rough estimating but this rule is very effective and helps to know in how many years the money will be doubled?
Investors use this method to calculate the different investments including mutual fund returns and the growth rate of the retirement portfolios.
Key Takeaways
- The Rule Of 70 is the calculation for finding the year in which the investment will be doubled.
- Investors use this method to know what will be the value of an investment in future.
- It is very important to keep in mind that the rule of 70 is an estimate based growth rate, if the rates of growth will fluctuate then the original calculation may be not accurate.
Formula
Number of Years to Double= 70 / Annual Rate.
Example of this Rule
Suppose an investor wants to calculate their mutual fund that in how many years their investment money will be doubled? Like –
If there will be a 7% growth rate then it will take 10 years to just double the money because according to formula –
Number of years to double = 70/7 = 10 years.
Explanation
Given steps are the equation of rule 70 –
- First, You have to determine the number of investments and the time of investment.
- After that, you will get the result of the return on investment by subtracting the amount from the amount received on maturity called ‘Return’.
- After that, you have to determine the time of investment by which we will get returns or capital appreciation. i.e- the time from the date of investment called ‘T’.
- From the above formula, for calculating growth rate, calculate the growth rate of investment called ‘G’.
- Finally, by using the above formula, we can easily calculate doubling time.
Limitations of Rule
As we have already told above the rule of 70 and any double rules include estimates of growth rates. According to a result, the rule of 70 can make some inaccurate results since it is limited to the ability to forecast future growth.
Difference Between Compound Interest and the Rule of 70
Compound Interest
Compound interest is an interest that is calculated by the initial principal that is also included by all the accumulated interest that was a previous time loan or deposit.
Compound interest is a very important feature for calculating the long term growth rates of any investments and many rules of doubling. If earned interest is not reinvested, then the number of years that it will take for doubling your investment will be higher than a portfolio of reinvests the interest earned.
Rule of 70
Rule of 70 is a calculation of any investment that makes your money double by the specified rate of return.it is used for comparing investment with different annual compound interest rates that how long it will take to grow investment.
Where does it come from?
If you invest money on 15% rates and want to know that when your money will be double then you have to apple rule of 70 rules for knowing this, so for it, you have to apply this rule –
Number of Years to Double= 70 / Annual Rate.
So according to this –
A number of years to double your money = 70 / 15 = 4.66 means 5 years.
It means that if you invest 60000 on 15 % rates then it will be 120000 in only 5 years.
What is the rule of 70 based on?
The rule of 70 is based on knowing the time of investment double so that you can calculate by yourself without anybody’s help, so if you invest money then you will get double money in that years.
How many years will it take your investment to double with a 2% interest rate?
According to the above formula, you will get your investment double in 35 years, proof is here-
Number of Years to Double= 70 / Annual Rate.
Number of Years to Double= 70/2 = 35 Years.
Summary
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