Consistent investments over a number of years can be an effective strategy to accumulate wealth. Even small additions to your savings add up over time. This calculator demonstrates how to put this savings strategy to work for you!
Definitions
- Starting amount
- The starting balance or current amount you have invested or saved.
- Years / Months, Weeks etc.
- The total number of years, weeks, months, periods, etc. you are planning to save or invest.
- Additional contributions
- The amount that you plan on adding to your savings or investment each period. The investment period options include weekly, bi-weekly, monthly, quarterly and annually. This calculator assumes that you make your contributions at the beginning of each period.
- Rate of return
- The annual rate of return for this investment or savings account. 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 1933. 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.
- Compounding
- Earnings on an investment's earnings, plus previous interest. This calculator allows you to choose the frequency that your investment's interest or income is added to your account. The more frequently this occurs, the sooner your accumulated earnings will generate additional earnings. For stock and mutual fund investments, you should usually choose 'Annual'. For savings accounts and CDs, all of the options are valid, although you will need to check with your financial institution to find out how often interest is being compounded on your particular investment.
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