To make successful investments and reach your saving targets, you will need to know the contributions and the estimated rates for each of your portfolios. The problem is, there are just too many factors that can determine your return rate. If you aren’t sure whether you are on the right track towards a particular goal, using an investment calculator can help you figure it out. Here is how these tools can help with making the right choices when investing your money.
Understanding Returns
The ultimate goal of any investment you make is to earn more money than you put in for your contribution. Whether you will gain a profit or lose your money – this is considered an investment return. Typically, the longer you wait for your returns, the higher they will be. A return rate calculator can show you just much you can expect to earn based on your contributions and the waiting period. Let’s say you want to put down $5,000, and you calculate leaving it in for 10 and 20 years. You will see that leaving it for a longer period of time yields better results even without additional contributions.
Another thing you should consider when calculating returns is the difference between total and price returns. The first one refers to all the regular payments you earn from the investment – whereas the latter is just the annual change in the price of the mutual fund or stock you are buying.
Calculating Investment Growth
An investment calculator can get you a pretty good idea of how your stock might grow over time, with or without additional contributions on a monthly or yearly basis. First, you have to enter the amount you plan to use for your initial investment, then follow it up with your regular deposits. When opting for a monthly cadence, include the amount you are planning to put down each month. If you are looking to deposit once a year, then enter the planned annual contribution. By using a diverse option calculator, you will be able to see that frequently compounded deposits lead to a higher return rate. You can also choose not to make any contribution, in which case your growth rate will be considerably lower. Lastly, enter the planned duration of the investment to determine the sum of your losses and gains by the date of return.
Including Tax Returns
Because it’s inevitable to lose some of your returns to taxes, an investment calculator typically includes all possible tax rates that may affect the final balance of your account. This can help you set more realistic goals, whether you are cashing out yearly or not. If you are cashing out every year, the calculator will show you how much taxes you will earn according to your present income tax rate. Waiting more than a year will allow you to benefit from long-term tax rates or put them into a tax-advantaged investment account. Both of these have significantly lower rates, which you can include when calculating your savings. By bolding your money in an individual tax-advantaged account, you can avoid paying taxes on your returns – further growing your investment.
Factoring in Inflation Rates
Due to the current economic instability, the purchasing power of your capital may be affected by fluctuating inflation rates. Making smart investments is the perfect way to preserve your dollar and even grow its power. A calculator can help you figure out if your present contributions will yield enough returns in the future.
Making Early Deposits
Most calculators are set to work by a default assumption that you will be making your contributions at the end of your chosen cadence. For monthly deposits, this means factoring in your participation for the last day of the month. However, in the case of certain stocks, the market may fluctuate weekly, which means that waiting to place a deposit at the end of the money means losing money. If you want to make your contribution as early as possible, it’s a good idea to use a calculator with an option for making deposits at the beginning of a cadence.
Entering your contribution, totals, and the expected annual rate of return into an investment calculator can help you understand how your portfolio will grow. However, this only shows you how much returns you can expect with your current parameters. To see if this will satisfy your needs, you must consider how much money you will need in the future and what you will spend it on. After determining this, you will be able to modify your approach, which will allow you to achieve whatever financial goals you have established for yourself.
