Getting more money out than you put in is the aim of any investment. The amount of money you make or lose is known as your “return on investment.” The longer you leave your money invested, the bigger your prospective profits could be because of compounding returns. To determine how your investment might increase over time, use our simple investing calculator.
An investment calculator can assist you in determining how to reach your objectives, regardless of whether you are a novice investor or an experienced one. It can demonstrate how the growth of your money can be influenced by your original investment, the frequency of your payments, and your risk tolerance.
This investment will be worth -
| Year | Starting Amount | Annual Contribution | Total Contribution | Interest Earned | Total Interest Earned | End Balance |
Based on the data you enter, the calculator estimates how your investment will increase. You must enter the following information into the calculator:
- An initial investment amount: How much you plan to invest to start.
- How long your investment will grow: This is how long you plan to leave your money in your investment — your investment’s timeline.
- Your expected rate of return: This will depend on your investment strategy. As a point of reference, the S&P 500 has a historical average annual total return of about 10%, or roughly 7% after inflation. You could also look at your investment account statements for the historical average annual return of your own investments or investment account.
- How frequently your investment will compound: Some financial products, like savings accounts, will have a specific compounding frequency to input here. If your expected return is annual — for example, in step 3, you assumed a 7% annual return — you’ll want to set the compounding frequency to annually as well. If you’re not sure, you can select annually to be conservative.
- Any planned additional investments: If you’re going to make additional investments, enter that amount in the amount of recurring investments field, then select whether you’ll make that investment monthly or annually.
How Investing Works
Investing lets you take money you’re not spending and put it to work for you. Money you invest in stocks and bonds can help companies or governments grow, while earning you compound interest. With time, compound interest may take modest funds and turn them into larger nest eggs, as long as you avoid several investing pitfalls.
You don’t necessary have to investigate individual firms and buy and sell stocks on your own to become an investor. Actually, studies indicate that this strategy is not likely to yield steady profits. A few low-fee index funds are likely to be sufficient for the typical investor who lacks the time to commit to financial management.
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In order to achieve long-term objectives, people frequently invest their money. These might be achieving a financial goal, such as purchasing a property, setting aside funds for a child’s education, or just saving enough for retirement.
Financial products purchased with the intention of making money are known as financial investments. Typical financial investments consist of:
- Stocks
Stocks are shares of ownership in a company. Stocks are also known as equities. Investors typically expect stocks to earn a high rate of return over time, though they can be volatile in the short-term.
- Bonds
Bonds are loans made from an investor to corporations or governments. The investor receives interest while the corporation or government uses the loan to fund its operations. Generally speaking, bonds that carry more risk — for example, from corporations rather than the U.S. government — will pay higher returns.
- Mutual funds and index funds
Mutual funds are pooled investments, or investment “baskets,” filled with many different assets. Mutual funds allow investors to purchase different securities within a single investment. They are often managed by professional fund managers who aim to beat the market (though analysis shows they often don’t). You can purchase funds that invest in stocks, bonds or other assets. Index funds are a type of mutual fund that tracks a stock market index rather than employing a professional investor. They often charge lower fees as a result.
- Exchange-traded funds
Exchange-traded funds are similar to index funds and mutual funds, but they trade on a stock exchange, which means they can be bought and sold throughout the day. They are often more tax-efficient than mutual funds.
- CDs
CDs, sometimes called certificates of deposit, are fixed-income investments typically used for defined-term goals. For example, if you know you need to buy a car next summer, you might put your savings into a 6-month CD where you’ll earn a set rate of return. The downside is that unlike the above investments, CDs generally charge a penalty if you need to take money out before the end of the term.
- Commodities
Commodity investments are investments in raw goods, such as energy, metal or agricultural products. Examples of commodities include oil, gold, wheat and livestock. Investors who invest in commodities tend to do so through commodity funds (such as oil ETFs) or through futures trading.
- Real estate
Real estate investing doesn’t just mean investing in physical properties, though that’s one way to do it. Many investors invest in real estate through REITs, or real estate investment trusts. These are companies that own a portfolio of real estate, often commercial properties or apartment buildings.
How to Calculate Return on Investment (ROI)
Return on investment (ROI) allows you to measure how much money you can make on a financial investment like a stock, mutual fund, index fund or ETF.
You can calculate the return on your investment by subtracting the initial amount of money that you put in from the final value of your financial investment. Then you would divide this total by the cost of the investment and multiply that by 100.
While you can use ROI to determine how profitable a financial investment can be, you should note that it does not account for how much time that asset will be held. And depending on your time horizon and other financial needs, this is something you should keep in mind when calculating how much money you can earn.
