# What It Is And How To Calculate It

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When we put our money in the market, or before we even do, one of the biggest questions we have is: How long will it take for this investment to really grow?

Luckily, there’s a mathematical shortcut to help you estimate the future value of an investment. The Rule of 72 is a quick way to figure out approximately the number of years needed to double your invested money.

Using your rate of return, the Rule of 72 is a simplified formula that measures the effect of compound interest on your investment dollars. As a refresher, compound interest is calculated on your principal amount, plus your accumulated interest. It essentially pays interest on top of interest and is a huge perk of investing in the market since your interest earned is automatically reinvested, earning you even more.

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## How to calculate the Rule of 72

To use the Rule of 72 formula, simply divide 72 by the expected annual rate of return. Take note that the formula assumes the same rate over the life of the investment.

When calculating the Rule of 72 for any investment, note that the formula is an estimation tool and the years are approximate. The Rule of 72 mainly works with common rates of return that are in the range of 5% to 12%, with an 8% return as the benchmark of accuracy. Lower or higher rates outside of this range can be better predicted using an adjusted Rule of 71, 73 or 74, depending on how far they fall below or above the range. You generally add one to 72 for every three percentage point increase. So, a 15% rate of return would mean you use the Rule of 73.

Keep in mind that a mutual fund or index fund are smart investing options, especially for beginners, as it offers instant diversification by pooling money from many individuals to invest in a collection of companies. They also offer somewhat predictable returns over the long run. For instance, S&P 500 index funds have returned about an 11% average annualized return since 1950, be it with significant downward and upward swings in some years.

Robo-advisors like Wealthfront, Betterment and SoFi will build you a portfolio of index funds (usually in the form of ETFs) based on your risk tolerance, time horizon and investing goals. These are good platforms to use when you’re just starting out investing since robo-advisors automatically rebalance your portfolio for you and as you get closer to your investing targets. If you want more control over your investments consider a brokerage that does not charge commission fees, like Charles Schwab or Fidelity.

### Fidelity Investments

• #### Minimum deposit and balance

Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go account, but minimum \$ 10 balance for robo-advisor to start investing. Minimum \$ 25,000 balance for Fidelity Personalized Planning & Advice

• #### Fees

Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETFs, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; \$ 0.65 per options contract. Fidelity Go is free for balances under \$ 10,000 (after, \$ 3 per month for balances between \$ 10,000 and \$ 49,999; 0.35% for balances over \$ 50,000). Fidelity Personalized Planning & Advice has a 0.50% advisory fee

• #### Investment vehicles

Robo-advisor: Fidelity Go® and Fidelity® Personalized Planning & Advice IRA: Fidelity Investments Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®

• #### Investment options

Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares

• #### Educational resources

Extensive tools and industry-leading, in-depth research from 20-plus independent providers

### Betterment

On Betterment’s secure site

• #### Minimum deposit and balance

Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, \$ 0 minimum balance; Premium Investing requires a \$ 100,000 minimum balance

• #### Fees

Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has a 0.40% annual fee

• #### Bonus

Up to one year of free management service with a qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC

• #### Investment options

Stocks, bonds, ETFs and cash

• #### Educational resources

Betterment RetireGuide ™ helps users plan for retirement

## Bottom line

Editorial Note: Opinions, analyzes, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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