Investment Return Calculator
Project the future growth of your capital and contributions.
Understanding Investment Return Projections
Projecting investment returns is a fundamental step in financial planning. Whether you are saving for retirement, a down payment, or long-term wealth building, understanding how your capital grows over time through compound growth is essential.
The Power of Compound Growth
Compound growth occurs when the earnings from your investments are reinvested to generate their own earnings. Over long durations, this "snowball effect" can lead to exponential growth. For example, a small recurring addition to your portfolio might seem insignificant in the first year, but after 20 or 30 years, it can represent the majority of your total balance.
Key Variables in Your Calculation
- Initial Capital: The amount of money you have available to invest today.
- Recurring Addition: The regular amount you plan to add to your investment account. Consistency often matters more than the specific amount.
- Annual Growth Rate: The average yearly percentage increase you expect. While markets fluctuate, historical averages for the stock market often range between 7% and 10% before inflation.
- Tax Impact: Taxes on capital gains or dividends can reduce your net return. If you are using a tax-advantaged account like a Roth IRA or 401(k), this may be 0%.
Practical Example
Imagine you start with $5,000 and commit to adding $200 every month. If your portfolio achieves an average 8% annual growth rate, after 15 years, your account would grow to approximately $78,900. Of that total, your actual out-of-pocket contributions would be $41,000, meaning you earned nearly $37,900 simply from market growth.
Why Calculate Real Returns?
It is important to remember that these calculations provide projections, not guarantees. Market volatility, inflation, and changing tax laws will impact the final outcome. By using this calculator regularly, you can adjust your savings rate or strategy to stay on track for your financial objectives.