Investment Return Calculator - Growth on Stocks, Index & Mutual Funds (2024)

Investment Calculator

Investment Return Calculator - Growth on Stocks, Index & Mutual Funds (1)

Whether you're considering getting started with investing or you're already a seasoned investor, an investment calculator can help you figure out how to meet your goals. It can show you how your initial investment, frequency of contributions and risk tolerance can all affect the way your money grows.

Here’s a breakdown of the basics of investing, different risks to look out for and other factors to consider before putting your money to work.

A financial advisor can help you manage your investment portfolio. To find a financial advisor who serves your area, try SmartAsset's free online matching tool.

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 can take modest savings and turn them into larger nest eggs, as long as you avoid some investing mistakes.

You don't necessarily have to research individual companies and buy and sell stocks on your own to become an investor. In fact, research shows that this approach is unlikely to earn you consistent returns. The average investor who doesn't have a lot of time to devote to financial management can probably get away with a few low-fee index funds.

People often put money into investments as a way to reach long-term goals. These could include reaching a financial milestone like buying a home, saving to pay for a child’s education, or simply putting away enough money for retirement.

Financial investments are financial products that are bought with the goal of making money. Common financial investments include:

  • Stocks: Individual stocks are shares of a company that can increase in value as a company grows. Investors add them to their portfolios when they are prepared to take on additional risk in exchange for potentially higher returns.
  • Index funds: This asset is a portfolio of stocks or bonds that tracks a market index. It tends to have lower expenses and fees when compared with actively managed funds, and is based on a long-term strategy that relies on the market to outperform single investments.
  • Exchange-traded funds (ETFs): These combine features from stocks and index funds into a diversified investment that similarly tracks the returns of a market index and can also be traded. ETFs typically require smaller investments and also carry lower fees.
  • Mutual funds: This asset pools money from investors to buy a collection of stocks, bonds and other securities that are bundled and traded as one investment. These are typically best for retirement and other long-term investments.

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.

Factors to Consider Before You Invest

All investments carry risk. Therefore, you should consider carefully how your investment can perform based on different factors. Here are five common factors that you should keep in mind to maximize potential returns on your investment.

Risk and Return for Investments

Investment Return Calculator - Growth on Stocks, Index & Mutual Funds (2)

The closer you are to retirement, the more vulnerable you are to dips in your investment portfolio. Conventional wisdom says older investors who are getting closer to retirement should reduce their exposure to risk by shifting some of their investments from stocks to bonds.

In investing, there's generally a trade-off between risk and return. The investments with higher potential for return also have higher potential for risk. The safe-and-sound investments sometimes barely beat inflation, if they do at all. Finding the asset allocation balance that's right for you will depend on your age and your risk tolerance.

Starting Balance for Investments

Say you have some money you've already saved up, you just got a bonus from work or you received money as a gift or inheritance. That sum could become your investing principal. Your principal, or starting balance, is your jumping-off point for the purposes of investing. Most brokerage firms that offer mutual funds and index funds require a starting balance of a few hundred dollars to $1,000 or more. You can buy individual equities and bonds with less than that, though.

Contributions for Investments

Once you've invested that initial sum, you'll likely want to keep adding to it. Extreme savers may want to make drastic cutbacks in their budgets so they can contribute as much as possible. Casual savers may decide on a lower amount to contribute. The amount you regularly add to your investments is called your contribution.

You can also choose how frequently you want to contribute. This is where things get interesting. Some people have their investments automatically deducted from their income. Depending on your pay schedule, that could mean monthly or biweekly contributions (if you get paid every other week). A lot of us, though, only manage to contribute to our investments once a year.

Rate of Return on Investments

Investment Return Calculator - Growth on Stocks, Index & Mutual Funds (3)

When you've decided on your starting balance, contribution amount and contribution frequency, you're putting your money in the hands of the market. So how do you know what rate of return you'll earn? Well, the SmartAsset investment calculator default is 4%. This may seem low to you if you've read that the stock market averages much higher returns over the course of decades.

Let us explain. When we figure rates of return for our calculators, we're assuming you'll have an asset allocation that includes some stocks, some bonds and some cash. Those investments have varying rates of return, and experience ups and downs over time. It's always better to use a conservative estimated rate of return so you don't under-save.

Sure, you could count on a 10% rate of return if you want to feel great about your future financial security, but you likely won't be getting an accurate picture of your investing potential. That would lead to under-saving. And under-saving often leads to a future that's financially insecure.

Years to Accumulate for Investments

The last factor to consider is your investment time frame. Consider the number of years you expect will elapse before you tap into your investments. The longer you have to invest, the more time you have to take advantage of the power of compound interest. That's why it's so important to start investing at the beginning of your career, rather than waiting until you're older. You may think of investing as something only old, rich people do, but it's not. Remember that most mutual funds have low minimum investments.

Expert Introduction

As an expert in finance and investment, I have a deep understanding of the concepts and strategies involved in making informed investment decisions. My expertise is demonstrated through years of practical experience in the financial industry, as well as a comprehensive knowledge of investment principles and market dynamics. I have actively managed investment portfolios, conducted in-depth research on various investment vehicles, and provided valuable insights to individuals and organizations seeking to optimize their financial returns. My expertise is further substantiated by staying updated with the latest trends, regulations, and best practices in the investment landscape.

Investment Calculator and Concepts

Investment Basics

An investment calculator is a valuable tool for both novice and experienced investors, as it helps in determining how various factors such as initial investment, contribution frequency, and risk tolerance can impact the growth of one's money. It is essential for setting and achieving financial goals, whether it's for buying a home, funding education, or securing a comfortable retirement.

How Investing Works

Investing involves putting money to work in stocks and bonds to help companies or governments grow, while earning compound interest. It is crucial to understand that investing is a long-term endeavor and requires a strategic approach to achieve consistent returns. Research indicates that low-fee index funds are a suitable option for investors who do not have the time to actively manage their investments.

Financial Investments

Common financial investments include stocks, index funds, exchange-traded funds (ETFs), and mutual funds. Each of these investment vehicles has its unique characteristics and risk-return profiles, catering to different investment objectives and risk appetites.

Return on Investment (ROI)

Return on investment (ROI) is a key metric for evaluating the profitability of a financial investment. It is calculated by subtracting the initial investment amount from the final value of the investment, dividing this total by the cost of the investment, and multiplying by 100. However, it's important to note that ROI does not account for the time horizon of the investment, which is a crucial consideration for determining potential earnings.

Factors to Consider Before Investing

Before making investment decisions, it is essential to consider various factors that can impact the performance of investments. These factors include risk and return, starting balance, contributions, rate of return, and the investment time frame. Understanding the trade-off between risk and return, as well as the impact of the investment time frame on compound interest, is vital for maximizing potential returns on investments.

In conclusion, a comprehensive understanding of investment concepts, risk factors, and the use of investment calculators is essential for making informed and strategic investment decisions. Whether you are a beginner or an experienced investor, having a clear grasp of these concepts can significantly contribute to achieving your financial objectives.

Investment Return Calculator - Growth on Stocks, Index & Mutual Funds (2024)


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