Investment goal: In the investment goal box, you will simply input the dollar amount you wish to achieve through investing. This could be your retirement goal or another financial goal like purchasing a house or saving for college that you are aiming to reach through investing.
Initial investment In the initial investment box, you will input the amount of money you invested when opening your account. This dollar amount will act as your launching pad, and the larger this initial amount is, the faster you’ll reach your goal.
Annual or monthly contribution: In the contribution box, you will input the amount of money you intend to contribute to your investment account. You have the option to choose between two different schedules: annual and monthly. Toggling between the two options will illustrate just how much of a difference more frequent contributions will make in how quickly you’ll reach your financial goal.
Rate of return: In the rate of return box, you will input the estimated annual rate of return for your investments, which is the percentage increase or decrease you expect to have over your initial investment. Your rate of return is calculated using the following formula:
While your rate of return is never guaranteed, it might be a good idea to use the average rate of return for major indexes as a benchmark when making your estimate. The 10-year annual average total returns for the S&P 500 Index, for example, is 13.01% (as of Oct. 31, 2020) while for the NASDAQ US Dividend Achievers Select it is 12.05%.
Compound interval: In the compound interval box, you will enter how often you expect your returns to compound, meaning the amount of times you expect your return from an investment (or any of your asset’s earnings) to be reinvested back into your account, where it will then generate additional earnings over time. This can occur on a daily, monthly, quarterly or yearly basis. In general, the more frequently your returns are compounded, the faster your money will grow.
Years to grow: In the years to grow box, you will input the number of years you expect to have before you need to withdraw your money.
Once you’ve inputted all of the appropriate fields, the investing calculator will crunch the numbers and show you what your estimated total will be after a specified period of time, and whether you are currently on track to hit your goal. The calculator will display your balance in three parts: your initial investment, your total contributions and the amount you’ll earn through compounding returns.
You can change different inputs in the calculator — such as the amount you initially invest, how much you invest either annually or monthly and your compounding intervals — to see how those changes will impact the amount of time it will take for you to reach your investment goal.
In finance, investing is when you commit your money to a financial asset or security, with the expectation of receiving more money in the future. The idea is that your money will gain profitable returns through interest, income or an appreciation in value. The primary goal of investing is generally to maximize your return while minimizing your risk.
A return on an investment refers to the benefit you receive from your investment in relation to your investment’s cost. The higher your return is, the more you receive from your investment. Your rate of return is how your investment performs (whether it’s a gain or a loss) over a specified period of time, and it is expressed as a percentage.
To calculate your return on an investment (ROI) — or the approximate profitability of your investment — you will need to subtract the initial cost of the investment from its final cost, which will give you its net return. Then, you will divide the net return by the initial cost of the investment and multiply it.
You can calculate the rate of ROI using the following formula:
Rate of Return = [(Current Value – Initial Value) / Initial Value] × 100
Different investments yield different average returns, so you will want to research your investments and their average rate of return. For example, the average stock market return for the past 10 years has been around 9% to 10%, although certain indexes have performed better than others. Meanwhile, long-term government bonds have historically had a return between 5% and 6%.
Investing promotes financial growth by ensuring your money not only holds its value over time by keeping up with inflation, but by delivering returns, too. Investing is a key component to building wealth over the long-term, and it is especially critical when saving for retirement.
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.
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