Have you ever wondered what your investments will be worth in the future? It’s a common question for anyone looking to grow their wealth over time. By understanding the future value of an investment, you can make informed financial decisions that optimize your returns.
Future Value Calculator
Predicting the Future Value of Investments
It’s impossible to predict the future. That’s why investing has some element of risk. For wise investors, there are calculations to help estimate the future value of an investment by making certain assumptions. The most basic of these calculations is Future Value. With future value, you can understand if your current financial decisions will produce favorable returns over time.
Let’s take an example. Tom has $10,000 that he wants to invest in corporate stock. The historical growth rate for this company’s stock has been 7% per year. Tom plans to hold this stock for ten years and wants to see how much the $10,000 will be worth in the future. This will help him decide if the investment is worth it.
Investors often use the future value calculation to decide between different investments. For example, two investments may have different levels of risk. By understanding the future value of each, you can determine if one investment creates enough future value to justify a higher risk. A future value calculator makes running multiple scenarios quick and easy.
How to Use the Future Value Calculator
Learning how to calculate the future value of money with this calculator is simple. First, identify the starting amount you want to invest, the anticipated interest rate, and the length of time you plan to hold the investment.
Step 1: Enter the Information
Enter the required details into each field:
- N: Number of periods (years, months, etc.)
- PV: Present Value (initial investment amount)
- I/Y: Interest or Yield Rate
Step 2 (Optional): Add Periodic Deposits
If you plan to make periodic deposits or the investment pays regular annuity payments, enter this amount in the PMT field. Also, select whether you deposit at the beginning or end of the compounding period. If you are unsure, select the “End” option to be conservative. If you don’t plan to make periodic deposits, enter 0 into the field.
Step 3: Calculate and Review the Results
Click “Calculate” and review the results. The results will provide a breakdown of numbers, the future value amount, and graphs showing the investment growth. The Future Value Calculator will also provide a schedule showing each period’s start and end balances.
Real Example
Let’s say you have $25,000 to invest and want to see the future value in 15 years. You’re anticipating an interest rate of 5%. You will also receive an annuity from this investment of $500 per year (which will be reinvested). The annuity payments will be made after each compounding period. To calculate the future value of your investment, enter the following values:
- Number of Periods (N): 15
- Starting Amount (PV): $25,000
- Interest Rate (I/Y): 5%
- Periodic Deposit (PMT): $500
- PMT timing: Select “End” of the compounding period.
Once you hit the “Calculate” button, you’ll see that the future value of your investment will be $62,762.49.
Understanding the Basic Future Value Formula
Calculating future value is a relatively straightforward calculation. A future value calculator should be able to do most of the work. Still, it’s a good idea to have a basic understanding of how the calculations work and how to understand the results.
The formula to calculate basic future value is:
[ FV = PV \left(1 + \frac\right)^n ]
Where:
- FV: Future Value of the investment (including all interest and annuity payments)
- PV: Present Value (starting amount before any interest payments)
- I/Y: Interest or Yield Rate
- N: Number of periods (number of months, years, etc.)
Periodic Deposit Calculation
In many cases, investors add money to their initial investment over time. For example, you may start with a $10,000 investment and decide to invest an additional $1,000 each year. This is where the calculation gets complex. Fortunately, our online calculator can easily consider this when calculating the results.
Detailed Example Calculation
To illustrate the calculation, let’s say you have an initial amount of $10,000, an interest rate of 6%, and you plan to make periodic deposits of $200 at the end of each period for 20 periods.
Calculation Breakdown
| Period | Beginning Balance | Deposit | Interest | Ending Balance |
|---|---|---|---|---|
| 1 | $10,200.00 | $200.00 | $612.00 | $10,812.00 |
| 2 | $11,012.00 | $200.00 | $660.72 | $11,672.72 |
| 3 | $11,872.72 | $200.00 | $712.36 | $12,585.08 |
| 4 | $12,785.08 | $200.00 | $767.10 | $13,552.19 |
| … | … | … | … | … |
| 20 | $37,613.11 | $200.00 | $2,256.79 | $39,869.90 |
Result
By the end of 20 periods, your investment would grow to $39,869.90, given an initial investment of $10,000 and periodic deposits of $200 at an interest rate of 6%.
Key Benefits and Helpful Tips
Understanding the future value of money can make you a more forward-thinking investor. Knowing how to make the most of your knowledge of the future value calculation can significantly impact your success in selecting and maximizing your investments.
Key Benefits
No Memorizing Formulas
The future value calculation can become extremely complicated, especially when adding additional periodic deposits. The future value calculator makes it easy to calculate the results. In addition, the charts are helpful for people who want to see a graphical representation.
Quick Investment Decisions
Being able to analyze investments quickly is critical. This tool allows users to evaluate multiple investment options in little time.
Understanding Investment Growth
With this tool, you can see how much growth comes from interest or periodic deposits. If you have a goal, you can adjust the PMT amount to see how much extra you need to contribute each period to hit your goal.
Helpful Tips
Factor in Inflation
Money loses value over time due to inflation. Don’t forget to factor this into your calculation. For example, if you expect the interest rate on your investment to be 10% and inflation to be 3%, enter 7% to see the future value in today’s dollars.
Month Calculation
In most cases, interest and yield rates are shown in annual terms. If you use months as your chosen period, divide the annual interest rate by 12 to find the monthly interest rate. For example, a yearly interest rate of 8% would be about 0.67% each month.
Use Longer Periods
Investments in certain asset classes such as stocks and cryptocurrency can be volatile. Analyzing investments over a longer period can help account for short-term dips in future worth.
Receive Lump Sum Payments
Future value can be helpful when deciding between a lump-sum payment or regular payments over time. For example, accepting $10,000 today is better than $1,000 yearly over ten years. The future value is nearly $7,000 more because of investment growth!
Related Calculators
To further assist with your financial planning, here are some other calculators that may be helpful:
| Calculator | Category |
|---|---|
| Investment Calculator | Finance |
| Compound Interest Calculator | Finance |
| Financial Calculator | Finance |
| Interest Rate Calculator | Finance |
| Retirement Calculator | Finance |
| Present Value Calculator | Finance |
| Annuity Calculator | Finance |
Understanding how these tools work together can provide a comprehensive view of your financial future.
By leveraging the power of a Future Value Calculator, you can pave the way for informed decision-making and potentially boost your investment growth significantly. Happy calculating!