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The Rule of 70 and the Rule of 72 are two popular shortcuts that can help investors quickly estimate the doubling time of an investment. These rules are particularly useful for grasping the potential growth of savings without diving into complex calculations. Both shortcuts serve a similar purpose, but they differ slightly in their application […]

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His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":822,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":{"id":"dXNlcjoxNDQ=","databaseId":144,"userId":144,"avatar":{"url":"https://secure.gravatar.com/avatar/f9d67283a5124e59bce3aa419d39f0450d8c3c316c9596a42a37aa8df9e54482?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Brandon is a Certified Financial Planner™ (CFP®), Retirement Income Certified Professional (RICP) and Enrolled Agent (EA) with more than 10 years of experience as a financial professional. 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","

What Is the Rule of 70?

","

The Rule of 70 is a mathematical formula used to estimate the time it takes for an investment or any quantity to double, given a fixed annual growth rate. This rule is used by investors and financial planners who want to quickly gauge the potential growth of their investments over time.

","

By dividing the number 70 by the annual growth rate percentage, you can determine the approximate number of years it will take for the initial amount to double. For example, if the interest rate is 7%, doubling will take 70 divided by 7 or 10 years. This quick and simple calculation provides a snapshot of the impact of compounding interest.

","

The Rule of 70 is a useful tool but it has limitations. For one, the rule assumes a constant growth rate, which is rarely seen in real-world scenarios. Economic conditions, market volatility and unforeseen events can all affect growth rates and make the actual doubling time longer or shorter than the rule predicts.

","

Additionally, the Rule of 70 does not account for factors such as inflation, taxes or fees, which can significantly affect the net growth of an investment. Therefore, it should be used in conjunction with other financial analysis tools.

","

What Is the Rule of 72?

","

The Rule of 72 is another way to estimate the time it will take for an investment to double in value, given a fixed annual rate of return. This rule produces useful insight without the need to delve into complex mathematical formulas.

","

By dividing 72 by the annual interest rate, investors can approximate the number of years required for their investment to grow twofold. For example, if you have an investment with an annual return rate of 6%, dividing 72 by 6 gives you 12 years for the investment to double.

","

The Rule of 72 also has limitations. Like the Rule of 70, it assumes a constant rate of return. Additionally, it is most accurate for interest rates between 6% and 10%. Outside this range, the approximation becomes less precise. The Rule of 72 can serve as a starting point, but is best complemented with more detailed financial analysis and advice from a financial advisor.

","

Major Differences of the Rule of 70 and 72

","

","

These rules are similar, but also have distinct differences that can impact their accuracy and application.

","$48","

While both the Rule of 70 and the Rule of 72 serve as valuable tools for estimating doubling time, differences in calculation basis, accuracy, historical context and application can make one more suitable than another for different scenarios. Understanding these distinctions can help you choose the right rule for your specific financial or economic analysis needs.

","

How to Know When to Use Each Rule

","

The Rule of 70 is most effective when dealing with lower growth rates, typically under 10%. It is particularly useful for long-term investments with modest growth rates, such as retirement savings or bonds.

","

The Rule of 72 is better suited for higher growth rates, typically above 10%. It is especially beneficial for evaluating investments with higher volatility, such as stocks or mutual funds, where returns can be more substantial.

","

Bottom Line

","

","

Understanding the difference between the Rule of 70 and the Rule of 72 can enhance your ability to plan your finances and devise investment strategies. Both rules serve as shortcuts to quickly and easily estimate the time it takes for an investment to double, given a fixed annual rate of return. The Rule of 70 divides 70 by the annual growth rate, while the Rule of 72 uses 72. The Rule of 72 is often preferred for its simplicity and slightly higher accuracy with common interest rates, especially those around 8%.

","

Investment Planning Tips

","$49","

Photo credit: ©iStock.com/sanjeri, ©iStock.com/Hispanolistic, ©iStock.com/PeopleImages

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Investors may be able to achieve superior returns with less volatility from investments in NVDIA stock by timing their investments over a long period rather than investing all their funds immediately. Dollar-cost averaging, a popular strategy for timing investments, generally leads to slightly lower returns compared to investing a lump sum. However, investors who use […]

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As a spokesperson for SmartAsset, she has been cited by Bloomberg, CNBC, Business Insider, Fox News, The Hill and many more. Jaclyn was previously an editor for CNET Money, where she covered banking, investing, credit cards and real estate. She also served as managing editor of small business content for Bizfluent, Work.Chron and AZCentral, and as a research consultant for NAPCO Media. As a past real estate licensee and Reatlor®, Jaclyn managed contracts for residential properties, while working closely with first-time homebuyers, investors and mortgage brokers.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Jaclyn","fullName":"Jaclyn DeJohn, CFP®","lastName":"DeJohn, CFP®","name":"Jaclyn DeJohn, CFP®","postCount":{"pageInfo":{"offsetPagination":{"total":95,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"jdejohn2","__typename":"User"},"reviewedBy":null,"writtenBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/45e9da41857bacf2d253783adac5d9d20d9dbe4758f7c9712c3759bcec7a34aa?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. 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NVDA Historical Returns

","

NVDIA (NVDA) has a globally dominant position when it comes to supplying the brains of the artificial intelligence revolution. After getting its start in the early 1990s selling graphics cards for computer gaming, NVDA increasingly began selling high-performance processing chips to companies building computers specialized for AI.

","

As worldwide demand for these systems mushroomed, NVDA’s fortunes followed suit. Over the last decade, its shares have returned more than 20,000%. Today, the company is valued at approximately $2.7 trillion.

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It has not been a smooth ride. The company’s shares, while generally trending sharply upward, have experienced notable periods of volatility. Recently, NVDA has been trading at more than 30% below its 52-week high. The downward trend has been driven by concerns over prospects for a falloff in investments in AI hardware, increasing competition from other chipmakers, trade restrictions and other forces.

","

However, NVDA is still far and away the leader in sales of chips for AI applications. It also has robust markets in robotics, cryptocurrency and, although no longer its chief business, gaming. Analysts generally consider its future bright, with continuing strong increases in sales and profits for the foreseeable future.

","

Sign up for the free Market Minute newsletter to stay up to date on NVDA and other potential investments.

","

Dollar-Cost Averaging Explained

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Investors may wonder how they can get on board while managing the volatility that comes with putting money into the company’s shares. One popular strategy is dollar-cost averaging. This method calls for investing a set amount of money at fixed intervals. For instance, you could put $1,000 into NVDA on the first of every month.

","

Dollar-cost averaging means you’ll buy more shares when prices are lower and fewer shares when prices peak. This lowers the average price of shares over time compared to lump-sum investing.

","

Dollar-cost averaging doesn’t usually mean higher returns. If maximizing earnings is the goal, investors can, on average, best serve it by immediately putting all their money in the stock or other security they want to buy. This is because, over time, markets generally trend upwards and, on average, the least expensive time to invest is today.

","

This may not always be true when it comes to stocks that exhibit greater volatility than the market. But, as a rule of thumb, dollar-cost averaging will lower returns while also dampening volatility.

","

NVDA Dollar-Cost Averaging

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Dollar-cost averaging an investment in NVDA can produce impressive returns. An analysis by a specialized dollar-cost averaging calculator indicates that investing $1,000 in the company’s shares every month starting April 3, 2023, would by March 21, 2025, have produced $228,996.88 in gains for a cost of $24,000. That’s a return of 954.15% over slightly less than two years.

","

NVDA stock today is up about 300% compared to two years ago. That means if you had put $24,000 into NVDA two years ago, you would have a relatively modest $72,000 now. In this historical example, you could supercharge your returns by dollar-cost averaging because the volatility in NVDA stock would have allowed you to buy shares for an average price of much less than they were trading for two years ago. Consider matching with a fiduciary financial advisor if you’re interested in discussing your investment strategy and execution.

","

Other Timing Methods

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In addition to dollar-cost averaging and all-at-once investing, you can try to time your investments by, for instance, watching for developments that may affect NVDA’s stock price. For example, if you anticipate an earnings release that will be more positive than everyone is expecting you could buy shares now. Or, if you expected earnings to disappoint, you could wait until after the release in the expectation that share prices will have dropped temporarily. This strategy relies on your having the ability to out-guess the market, however.

","

One effective way to invest is through a tax-deferred retirement account, such as a 401(k). This allows you to dollar-cost average because you put money into the account every payday. It also provides a tax benefit by allowing earnings to accumulate tax-free. And, due to restrictions on early withdrawals, you will likely be discouraged from taking profits instead of staying fully invested. Studies show staying fully invested at all times generally is the most effective way to build long-term wealth.

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The Market Minute newsletter can deliver digestible economic and stock market news right to your inbox. Sign up today.

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Bottom Line

","

Timing NVDA investments can increase returns and dampen volatility if you use the dollar-cost averaging method. This reduces the average cost of shares and is an especially effective method of investing when prices are subject to significant fluctuations, as is the case with NVDA. The company’s long-term future prospects are generally highly regarded, despite its stock price retreating from recent highs. So whether investing all at once with a buy-and-hold strategy or purchasing shares with dollar-cost averaging, NVDA remains one of the most popular and valuable companies to invest in.

","

Tips

","$5d","

Photo credit: ©iStock.com/peshkov

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The portfolio interest exemption is a part of U.S. tax law that lets foreign investors receive interest income from certain U.S. sources without paying withholding tax. This rule helps encourage international investment by lowering tax costs. To use the exemption, investors must meet specific requirements. A financial advisor can help you determine eligibility and gather […]

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","

How Portfolio Interest Works

","

Portfolio interest refers to the interest income earned from investments in certain types of debt instruments held within an investment portfolio. Investors often favor this type of interest due to its potential tax advantages, especially for non-resident aliens investing in U.S. securities.

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Portfolio interest can be generated from a variety of debt instruments, including government bonds, corporate bonds and certain types of notes. These investments are typically lower risk than equities, which may appeal to conservative investors or those looking to balance a more aggressive portfolio. A mix of these instruments can help investors maintain a diversified portfolio that provides steady interest income and reduces overall risk.

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What Is the Portfolio Interest Exemption?

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The portfolio interest exemption allows non-U.S. lenders to receive interest payments from U.S. borrowers without the standard 30% withholding tax. This tax benefit makes U.S. debt securities more attractive to foreign investors and helps encourage cross-border investment.

","

For U.S. borrowers, the exemption can lead to easier access to foreign capital. Without the added tax cost, foreign lenders may offer better loan terms, which can help U.S. businesses lower financing costs or access funds for expansion or refinancing.

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Foreign investors benefit by gaining exposure to U.S. debt while reducing their tax burden. To qualify, they must submit IRS Form W-8BEN or W-8BEN-E to the U.S. borrower, confirming their non-U.S. status. This form must be kept current to maintain eligibility for the exemption.

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Tax Treatment of Portfolio Interest

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The tax treatment of portfolio interest is particularly favorable, as it is generally exempt from U.S. withholding tax. This exemption is designed to encourage foreign investment in U.S. securities, making it attractive for international investors seeking diversification.

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The favorable tax treatment of portfolio interest can significantly impact investment strategies for non-U.S. residents. By investing in U.S. securities that qualify for this exemption, foreign investors can potentially enhance their after-tax returns. This can be particularly beneficial in a low-interest-rate environment, where maximizing net income is crucial.

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How to Qualify for the Portfolio Interest Exemption

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To qualify for the portfolio interest exemption, an investor must be a non-resident alien or a foreign corporation. U.S. citizens, residents or domestic entities are not eligible. Additionally, the investor must not be a bank receiving interest on an extension of credit made in the ordinary course of its trade or business. Investors must provide the necessary documentation, such as IRS Form W-8BEN, to certify their foreign status and claim the exemption.

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Not all debt instruments are eligible for the portfolio interest exemption. The debt must be in registered form, meaning it is issued with a certificate that identifies the owner. Bearer bonds, which do not have such identification, do not qualify. Furthermore, the debt instrument must not be part of a tax avoidance scheme, and the interest can’t be contingent on the debtor’s profits or other financial metrics.

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Claiming the exemption requires submitting the correct forms to the withholding agent or financial institution handling the debt. These forms must be accurate and updated as needed. Investors may also need to meet reporting rules in their home country. Missing documentation or failing to renew forms could result in withholding tax being applied.

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Bottom Line

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The portfolio interest exemption allows non-U.S. investors to receive interest income from certain U.S. sources without the standard 30% withholding tax. To qualify, the interest must come from registered obligations, such as bonds, and the recipient must not be a U.S. person. Interest from bank loans or payments tied to the borrower’s profits does not qualify for the exemption.

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Tax Planning Tips

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Photo credit: ©iStock.com/MixMedia, ©iStock.com/filadendron

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Fee simple absolute is a type of property ownership that grants the owner full rights to use, sell, lease, or transfer the property without restrictions. It remains in effect indefinitely unless transferred or acquired through legal means such as eminent domain. A financial advisor can help assess how this ownership structure fits into your overall […]

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","

What Is Fee Simple Ownership?

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Fee simple ownership is the most complete and unrestricted type of property ownership recognized under real estate law.

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When someone holds a property in fee simple, they have full control over the land and any structures on it, giving them the ability to sell, lease or pass it down to heirs. This ownership is indefinite, meaning it lasts for the owner’s lifetime and continues through their chosen beneficiaries unless they decide to transfer the property.

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Unlike other forms of ownership, such as leasehold or life estate, fee simple ownership comes with virtually no conditions or limitations beyond those imposed by law. Property owners are free to make improvements, rent out the property or sell it at their discretion. The only obligations are to adhere to zoning regulations, local building codes and property tax requirements.

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Fee simple ownership is recognized as the highest form of property interest in the United States and many other countries. It offers greater security to property owners because no other entity retains a stake in the land. Even in the event of the owner’s death, heirs inherit the property without restrictions, making it a preferred form of ownership for long-term real estate investments.

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Pros and Cons of Fee Simple Absolute Ownership

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Fee simple absolute ownership can offer substantial advantages to buyers and investors. But, like any real estate arrangement, it comes with both benefits and drawbacks.

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Heres are seven common fee simple absolute ownership benefits to keep in mind:

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Full control. The owner has full control of the property and can sell, lease, or transfer it without restrictions.
No restrictions. There are no conditions or limitations imposed on how the property can be used.
Indefinite ownership. Ownership lasts indefinitely and can be passed down to heirs.
Strong legal protection. Provides the highest level of ownership rights recognized by law.
Market flexibility. The property can be sold or refinanced without external restrictions.
Estate planning benefits. Can be included in wills and trusts for inheritance planning.
Investment potential. Owners can make improvements or develop the land to increase value.

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And, for a comparison, here are seven common drawbacks of fee simple absolute ownership:

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Full responsibility. The owner is responsible for all costs, including property taxes, maintenance and insurance.
Liability risks. Owners are fully liable for legal claims or damages related to the property.
Government authority. The property can still be taken through eminent domain or subject to zoning laws.
Market fluctuations. Property value is subject to economic conditions, which can affect investment returns.
Estate complications. Without proper estate planning, property transfer to heirs may lead to probate or disputes.
Ongoing expenses. There are no built-in protections against rising property taxes or costs of ownership.
No automatic protections. Unlike some ownership structures, there are no built-in safeguards against creditors or financial liabilities.

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Types of Fee Simple Ownership

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Fee simple ownership has different classifications to determine the extent of rights. Here are four types to consider:

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Fee simple absolute: Fee simple absolute grants the owner full rights to use, sell, lease, or transfer the property. Ownership is indefinite and not subject to conditions, except for legal regulations like zoning laws and property taxes.

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Fee simple defeasible: This type of ownership is conditional, meaning that the property must be used in a specific way or meet certain criteria. If the conditions are violated, ownership may revert to the original owner or another designated party. Common examples include properties granted for educational or religious use, which could be reclaimed if the terms are not upheld.

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Fee simple determinable: A subset of fee simple defeasible, this ownership automatically ends if a specific condition is violated. The property reverts to the original owner without the need for legal action. For example, if a property is given under the condition that it remains a public park, failure to maintain that use results in an automatic transfer back to the original owner.

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Fee simple subject to condition subsequent: Unlike fee simple determinable, this ownership does not automatically revert if conditions are violated. Instead, the original owner must take legal action to reclaim the property. This distinction provides the current owner with a potential opportunity to correct the issue before ownership changes hands.

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Fee Simple vs. Leasehold Ownership

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Leasehold ownership grants the right to use and occupy a property for a fixed period, but the land itself remains under the ownership of a separate entity, such as a landlord or government agency. Once the lease term expires, ownership reverts to the landowner unless the lease is renewed or extended.

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Leasehold properties are common in certain areas, such as Hawaii and New York, where land is often retained by large estates or institutions.

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The primary distinction between fee simple and leasehold ownership is permanence. Fee simple ownership provides indefinite control, while leasehold ownership is temporary and subject to lease terms.

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Additionally, leasehold property owners may face restrictions on modifications, resale conditions and additional fees, such as ground rent or lease renewal costs.

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Bottom Line

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Fee simple absolute ownership gives full control over a property, allowing the owner to use, sell, lease, or transfer it freely. Unlike leasehold or life estate ownership, it does not come with restrictions on duration or use, apart from taxes and zoning regulations. This form of ownership offers long-term stability and the broadest rights over the land and any structures on it.

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Real Estate Investment Planning Tips

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