Compound Growth — The Rule of 70 (aka the Rule of 72)
Sunday, November 4th, 2007A good rule of thumb for estimating how long it will take for anything growing at a compound rate to double is to divide 70 by the annual growth rate as a percentage.
For example, if you wanted to know how long it would take for the value of you home to double, and you estimate that its value will increase by 5% per year, simply divide 70 by 5, which equals 14. So, if your home value appreciates 5% for year in 14 years it will be worth twice what is today.
Alternatively, this rule can be used to figure a growth rate. For example, if you know that it costs twice as much to go to the movies today as it did 10 years ago, you can divide 70 by 10 years, which equals 7. So, on average, movie ticket prices increase by 7% per year for the past 10 years.