Investment Calculator
Calculate variables for fixed-return investments
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Understanding Investments
Investing is the act of using money to make more money. The Investment Calculator can help determine one of many different variables concerning investments with a fixed rate of return. Below we breakdown the core concepts and types of investments.
Variables involved
For any typical financial investment, there are four crucial elements that make up the investment.
- Return rate – For many investors, this is what matters most. On the surface, it appears as a plain percentage, but it is the cold, hard number used to compare the attractiveness of various sorts of financial investments.
- Starting amount – Sometimes called the principal, this is the amount apparent at the inception of the investment. In practical investing terms, it can be a large amount saved up for a home, an inheritance, or the purchase price of a quantity of gold.
- End amount – The desired amount at the end of the life of the investment.
- Investment length – The length of the life of the investment. Generally, the longer the investment, the riskier it becomes due to the unforeseeable future. Normally, the more periods involved in an investment, the more compounding of return is accrued and the greater the rewards.
- Additional contribution – Commonly referred to as annuity payment in financial jargon, investments can be made without them. However, any additional contributions during the life of an investment will result in a more accrued return and a higher end value.
Different Types of Investments
Our Investment Calculator can be used for almost any investment opportunity that can be simplified to the variables above. The following is a list of some common investments. The investment options available are far beyond what was listed.
CDs
A simple example of a type of investment that can be used with the calculator is a certificate of deposit, or CD, which is available at most banks. A CD is a low-risk investment. In the U.S., most banks are insured by Federal Deposit Insurance Corporation (FDIC), a U.S. government agency. This means the CD is guaranteed by FDIC up to a certain amount. It pays a fixed interest rate for a specified amount of time, giving an easy-to-determine rate of return and investment length.
Bonds
Risk is a key factor when making bond investments. In general, premiums must be paid for greater risks. A conservative approach to bond investing is to hold them until maturity. This way, interest payments become available, usually twice a year, and owners receive the face value of the bond at maturity. One very special kind of bond is the United States Treasury inflation-protected securities, known as TIPS. TIPS offers an effective way to handle the risk of inflation.
Stocks
Equity or stocks are popular forms of investments. While they are not fixed-interest investments, they are one of the most important forms of investments for both institutional and private investors. A stock is a share, literally a percentage of ownership, in a company. It permits a partial owner of a public company to share in its profits, and shareholders receive funds in the form of dividends for as long as the shares are held.
Real Estate
Another popular investment type is real estate. A popular form of investment in real estate is to buy houses or apartments. The owner can then choose to sell them (commonly called flipping) or rent them out in the meantime to maybe sell in the future at a more opportune time. Real estate investing is usually contingent upon values going up, and there can be many reasons as to why they appreciate; examples include gentrification or certain global affairs.
Commodities
These can range from precious metals like gold and silver, to useful commodities like oil and gas. Investment in gold is complex, as the price of it is not determined by any industrial usage but by the fact that it is valuable due to being a finite resource. Oil is traded around the world on spot markets, public financial markets where commodities are traded for immediate delivery, and its price goes up and down depending on the state of the global economy.
Although the vastly different types of investments listed above (among many others) can be calculated using our Investment Calculator, the real difficulty is trying to arrive at the correct value for each variable. Due to this difficulty, there really is no "right" way to arrive at accurate calculations, and results should be taken with a grain of salt. For more precise and detailed calculations, it may be worthwhile to first check out our other financial calculators.
Key Takeaways
- Identify Your Goal: Select the tab representing the variable you wish to solve for based on what information you already know.
- Consistent Contributions: Regular deposits are a key driver in maximizing investment growth over long periods.
- Compounding Effect: The more periods involved, the greater the exponential growth of your returns.