Use this advanced investment growth calculator to quickly determine the future value of your savings, factoring in compound interest and regular annual contributions.
top android calculator: Future Value of Investment Calculator
Detailed Calculation Steps
Future Value of Investment Formula
$$F = P(1+r)^T + A \left[\frac{(1+r)^T – 1}{r}\right](1+r)$$
Where: F = Future Value, P = Principal, A = Annual Addition, r = Annual Rate (as decimal), T = Time in Years.
Formula Source: InvestopediaVariables Explained
The Future Value of Investment Calculator requires four key variables to perform the compounding calculation:
- Initial Principal Amount ($): The starting lump sum of money you deposit into the investment account.
- Annual Addition ($): The fixed amount of money you plan to add to the principal at the beginning of each year.
- Annual Interest Rate (%): The expected annual rate of return, expressed as a percentage. This rate is assumed to be compounded annually.
- Time Period (Years): The total number of years you plan to hold the investment.
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What is Investment Growth Calculator?
An Investment Growth Calculator is a financial tool designed to forecast the potential future value of an investment over a set period. Its core function is to illustrate the power of compounding, which is the process of earning returns not only on the initial principal but also on the accumulated interest from previous periods.
This specific tool utilizes the formula for future value of an annuity (for the annual additions) combined with the future value of a lump sum (for the initial principal). Understanding your potential growth is crucial for long-term financial planning, retirement goals, and making informed decisions about allocating capital.
How to Calculate Investment Future Value (Example)
Consider an investment with the following parameters:
- Initial Principal (P): $5,000
- Annual Addition (A): $1,000
- Annual Rate (R): 10% (r = 0.10)
- Time (T): 5 years
The calculation is split into two parts (Principal Growth and Addition Growth):
- Principal Growth: $5,000 \cdot (1 + 0.10)^5 = \$5,000 \cdot 1.61051 = \$8,052.55$
- Addition Growth (Annuity): The sum of annual additions compounded over 5 years is calculated separately. The final result combines these components.
- Final Future Value (F): \$8,052.55 (Principal) + \$6,715.61 (Additions) = $\textbf{\$14,768.16}$
Frequently Asked Questions (FAQ)
Is the Annual Addition made at the beginning or end of the year?
For maximum growth and simplicity, this calculator assumes the Annual Addition is made at the beginning of each period, allowing it to accrue interest immediately.
What is compound interest and why is it important?
Compound interest is “interest on interest.” It is important because it allows your wealth to grow exponentially over time, making it one of the most powerful concepts in finance.
What if I want to calculate monthly additions instead of annual?
This calculator is optimized for annual compounding and additions. For monthly calculations, you would need to adjust the rate (R/12) and the time (T*12), which is handled by a specialized monthly compounding calculator.
Do I need to include inflation in my rate?
The rate you input is typically a nominal (pre-inflation) rate. For a real return, you should subtract the expected inflation rate from your nominal rate before inputting it.