What is the Investment Calculator?
Investing is the act of using money to make more money. The Investment Calculator can help determine one of many different variables concerning investments with a fixed rate of return. Unlike simpler tools, it allows you to solve for a specific unknown variable—whether that's the starting principal needed, the required monthly contribution, the necessary return rate, or how long it will take to reach your financial target.
The Variables Involved
For any typical financial investment, there are four crucial elements that make up the calculation:
- Return rate: For many investors, this is what matters most. On the surface, it appears as a plain percentage, but it is the cold, hard number used to compare the attractiveness of various sorts of financial investments.
- Starting amount: Sometimes called the principal, this is the amount apparent at the inception of the investment. In practical investing terms, it can be a large amount saved up for a home, an inheritance, or an initial lump sum.
- End amount: The desired amount at the end of the life of the investment (Future Value).
- Investment length: The life of the investment. Generally, the longer the investment, the more periods involved, the more compounding of return is accrued, and the greater the rewards.
- Additional contribution: Commonly referred to as an annuity payment in financial jargon. Any additional contributions during the life of an investment will result in a more accrued return and a higher end value.
The Mathematics: Future Value Formula
This calculator precisely processes scenarios where payment frequency differs from compounding frequency by calculating the effective rate per payment period.
FV = P × (1 + R)N + PMT × [ ((1 + R)N - 1) / R ] × C
Where:
FV = Future Value (End Balance)
P = Starting Principal
R = Effective rate per payment period
N = Total number of payment periods
PMT = Periodic contribution amount
C = 1 if contributions are made at the end of the period, or (1 + R) if made at the beginning.
Different Types of Investments
Our Investment Calculator can be used for almost any investment opportunity that can be simplified to the variables above.
- CDs & Savings Accounts: A low-risk investment where money is left to grow at a guaranteed, fixed interest rate over a specified amount of time.
- Bonds: Conservative fixed-income investments where interest payments become available regularly, and owners receive the face value at maturity.
- Stocks & Mutual Funds: Equities represent a percentage of ownership in a company or a basket of companies. While not fixed-interest, this calculator can model their historical or projected average returns.
- Real Estate & Commodities: Physical investments like rental properties, precious metals, or land which appreciate over time based on market demand and improvements.
Frequently Asked Questions
Contributing at the beginning of each period (such as the 1st of the month) gives your money more time in the market to compound, resulting in a slightly higher final balance compared to contributing at the end of the period (such as the 31st of the month).
Compounding frequency determines how often your accumulated interest is added back to your principal to start earning its own interest. More frequent compounding (e.g., monthly or daily) will yield a higher end balance than annual compounding, assuming the nominal annual interest rate is the same.
For long-term, diversified stock market investments (like S&P 500 index funds), historical averages sit around 7% to 10% annually before inflation. For safer investments like bonds or high-yield savings accounts, expect lower returns in the 3% to 5% range.
No, this is a gross nominal calculator. It does not automatically deduct taxes or adjust for inflation. If you want an inflation-adjusted ("real") result, you can manually subtract your expected inflation rate from your expected return rate (e.g., if you expect 8% returns and 3% inflation, enter a 5% Return Rate).
If you solve for "Additional Contribution" and receive a negative number, it means your Starting Amount alone will grow beyond your Target Amount over the specified time frame through compound interest. The negative number represents the amount you could theoretically withdraw each period and still exactly hit your target.