If you know the rate of return for your investment and are making regular constant contributions, you can use this calculator to find the final balance of your investment. Your final balance includes your principal and investment gains (or interest).
This calculator uses your initial investment, rate of return, additional contributions, investment duration and contribution frequency as input. The compounding period/frequency is assumed to be the same as the contribution period/frequency.
When investing in a high-interest savings account, guaranteed investment certificate (GIC) or high-quality (investment grade) bonds, you have a definite rate of return which you can use to calculate your final balance, while investing in junk bonds, stocks, and real estate has uncertain rates of return. In such cases, you can use historical rates of return to estimate your rate of return.
The final balance calculated with this calculator will only be as good as your estimate for the rate of return.
Investment gains, also known as investment returns, refer to the amount of money earned on an investment over a given period of time. These gains can come in different forms, including:
Capital gains: Capital gain is the profit earned from selling an investment for more than the original purchase price. For example, if you buy a stock for $100 and sell it for $120, you have a capital gain of $20.
Dividends: These are payments made by a company to its shareholders as a portion of their earnings. Dividends are typically paid out in cash, but investors can also invest them back into the company by purchasing additional shares.
Interest income: This is the income earned from interest-bearing investments, such as bonds or savings accounts. The interest income is paid by the borrower or issuer of the bond, and it is usually a fixed percentage of the principal amount invested.
Investment gains can be positive or negative, depending on the performance of the investment. Positive investment gains mean that the investment has generated a profit, while negative investment gains mean the investment has lost value. It's important to remember that investment gains are not guaranteed, and all investments come with some risk.
In the context of investments, principal refers to the original amount of money invested or loaned before any interest or returns are earned. It is the initial amount of money put into an investment, also known as the "principal balance".
The principal amount is the amount on which investment returns are calculated. For example, if you invest $10,000 in a bond that pays 5% interest annually, your principal amount is $10,000, and your annual return will be $500 (5% of $10,000).
In summary, the principal is the original amount of money invested or loaned, and it is used as a basis for calculating investment returns.
Investment grade bonds are debt securities issued by corporations, governments, or other organizations that have been assigned a credit rating of BBB- or higher by credit rating agencies such as Standard & Poor's, Moody's, and Fitch. These bonds are considered of higher credit quality and therefore have a lower risk of default than lower-rated or "junk" bonds.
Investment-grade bonds typically have lower interest rates than lower-rated bonds because they are considered less risky. Established companies generally issue them with a stable financial track record, and their ability to repay their debt is considered strong. As a result, they are often a popular investment choice for risk-averse investors seeking a steady income stream.
However, even though investment-grade bonds are considered to be of higher quality, they still carry some level of risk. Investors should always conduct their research and due diligence before investing in any bond, including investment-grade bonds.
Junk bonds, also known as high-yield bonds, are debt securities issued by corporations or other organizations with lower credit ratings than investment-grade bonds. These lower credit ratings indicate a higher risk of default, which makes these bonds more risky investments than investment-grade bonds.
Junk bonds offer higher yields to investors than investment-grade bonds to compensate for the higher risk of default. However, higher yields come with a greater risk of losses, as the issuing companies may be less financially stable and more likely to default on their debt obligations.
Companies often issue junk bonds in the early stages of growth or in industries with high levels of volatility. Some investors are willing to take on the additional risk of junk bonds in exchange for potentially higher returns.
It's important to note that not all junk bonds are created equal, and investors should carefully evaluate the creditworthiness of the issuing companies before investing in any bond, especially junk bonds.
Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment. It calculates the difference between the present value of cash inflows and the present value of cash outflows, considering the time value of money.
In other words, the NPV considers that a dollar received in the future is worth less than a dollar received today due to inflation and the opportunity cost of not having that money available to invest in other projects.
If the NPV is positive, the investment is expected to generate more cash inflows than outflows, and therefore it may be profitable. If the NPV is negative, the investment will likely result in more cash outflows than inflows, which may not be a good investment.
NPV is a commonly used tool in corporate finance and investment analysis, and it helps decision-makers to determine the economic viability of a project or investment opportunity.