Meeting your long-term investment goal is dependent on a number of factors. This not only includes your investment capital and rate of return, but inflation, taxes and your time horizon. Our return on investment calculator helps you sort through these factors and determine your bottom line. Click the "View Report" button for a detailed look at the results.
- Years
- The number of years you wish to analyze. This can be any number from one to one hundred.
- Rate of return
- This is the annually compounded rate of return you expect from your investments before taxes. The actual rate of return is largely dependent on the type of investments you select. From January 1970 to December 2008, the average annual compounded rate of return for the S&P 500, including reinvestment of dividends, was approximately 9.7% (source: www.standardandpoors.com). During this period, the highest 12-month return was 61%, from June 1982 through June 1983. The lowest 12-month return was -39%, which happened twice, once from September 1973 to September 1974 and again from November 2007 to November 2008. Savings accounts at a bank may pay as little as 1% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that funds and/or investment companies may charge.
- Compound Interest
- Interest on an investment's interest, plus previous interest. The more frequently this occurs, the sooner your accumulated interest will generate additional interest. You should check with your financial institution to find out how often interest is being compounded on your particular investment.
- Initial investment
- Total you currently have invested that should be included in this analysis.
- Inflation rate
- What you expect for the average long-term inflation rate. A common measure of inflation in the U.S. is the Consumer Price Index (CPI), which has a long-term average of 3.1% annually, from 1925 through 2008. The CPI for 2008 was 4.0%, as reported by the Minneapolis Federal Reserve.
- Annual investments
- The amount you will contribute each year to your investments. If you check the box to adjust this amount for inflation, your annual investment will increase each year by the inflation rate.
- Tax rate
- The percentage of your investment return you will pay in taxes. Your taxes are assumed to be payable annually, at the end of the year.
- Compounded interest return
- Total after-tax return if your investment profit is compounded annually.
- Simple interest return
- Total after-tax return if your investment profit is simple interest with no compounding.
- Total invested capital
- Total you have invested. This includes your initial investment and all periodic investments.
- Investment final total
- Your investments total ending value. If you have checked the box to show values after inflation, this amount is the total value of your investment in today's dollars. If this box is unchecked, it will show the actual value of the investment.
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The Advantages of a Return on Investment Calculator
Return on investment calculator is a handy software tool that helps a layperson comb through the cobwebs of financial and investment planning. Most of the people feel genuinely sick when adjusting the tax deductions and effects of inflation on the actual investment returns.
For example, suppose you have invested $10,000 in one of the investment vehicles – stocks, hedge funds, government debentures, real estate, etc. It is not easy to predict the rate of growth of stocks, hedge funds, or property. However, assume that you get a 10% growth overall. That means you get $1000 at the end of the first year of the investment. You add further $5000 to the investment. Now, the total investment amount becomes $16000 ($10000+$1000+$5000).
The growth calculation for the next year involves tax deductions and inflation adjustments. Things become complex at this juncture. You cannot proceed without the help of a calculator or a computer. Most people will find it difficult to continue even with the help of those electronic tools. The return on investment calculator software is specifically created to help in such situations. You only have to enter certain data and the software will do all the calculations and provide you a clear report for up to even 100 years.
How to Use Return on Investment Calculator
At first, one has to enter the number of years for which report is required. It can be any number between 1 and 100. The second thing is the rate of return. It is not going to be possible to exactly calculate the rate of return for the future. It is better to rely on how the investment fared in the last four or five years and put a lower figure than expected, as a higher figure may skew-up the results and show inflated returns.
The next two items needed are the original investment (that is, the total amount invested at present), and the likely annual investment. You need to provide a likely tax deduction rate and inflation rate for the return on investment calculator software to show a chart of the likely growth of your investment returns.