Investment Return Calculator
Investment Projection
Understanding Your Investment Returns
Predicting the growth of your capital is a fundamental step in financial planning. This Investment Return Calculator uses the power of compound interest to estimate how much your portfolio could be worth based on your initial outlay and recurring contributions.
The Math Behind Return Projections
The calculator employs the future value formula for an annuity. It accounts for both your starting balance and the monthly additions made over your specified timeframe. Unlike a simple interest calculation, these results assume that any gains generated are reinvested back into the principal, creating a "snowball effect" known as compounding.
- Initial Capital: The lump sum you are starting with today.
- Monthly Contribution: The amount you plan to add to your portfolio every month.
- Expected Annual Return: The average percentage growth you expect per year (historical stock market average is roughly 7-10%).
- Duration: The total number of years you intend to keep the money invested.
Practical Example: Starting Small
Consider an investor starting with $5,000. If they contribute $200 every month for 20 years with an average return of 8%, the results are significant:
- Total Invested: $53,000
- Growth from Gains: ~$88,000
- Final Portfolio Value: ~$141,000
This demonstrates that over long periods, the interest earned (capital gains) often exceeds the actual money contributed by the investor.
Factors That Influence Your Real Return
While this tool provides a mathematical projection, real-world returns are influenced by market volatility, inflation, and fees. It is wise to use a conservative return rate (e.g., 5-6%) when planning for retirement to account for the eroding effect of inflation on purchasing power.