Calculate returns on regular, periodic investments
This calculator lets you visualize the value of investing regularly. It lets you calculate the compounding from a simple interest rate or looking at specific returns from the stock market indexes or a few different individual stocks.
- Enter the amount of money to be invested monthly
- Choose to use an interest rate (and enter a specific rate) or
- Choose a stock market index or individual stock
- Use the slider to change the initial starting date of your periodic investments – You can go as far back as 1970 or the IPO date of the stock if it is later than that.
- Use the “Generate URL to Share” button to create a special URL with the specific parameters of your choice to share with others – the URL will appear in your browser’s address bar.
You can hover over the graph to see the split between the money you invested and the gains from the investment. In most cases (unless returns are very high), initially the investments are the large majority of the total balance, but over time the gains compound and eventually, it is those gains rather than the initial investments that become the majority of the total.
Some of the tech stocks included in the dropdown list have very high annualized returns and thus the gains quickly overtake the additions as the dominant component of the balance and you can make a great deal of money fairly quickly.
It becomes clearer as you move the slider around, that longer investing time periods are the key to increasing your balance, so building financial prosperity through investing is generally more of a marathon and not really a sprint. However, if you invest in individual stocks and pick a good one, you can speed up that process, though it’s not necessarily the most advisable way to proceed. Lots of people underperform the market (i.e. index funds) or even lose money by trying to pick big winners.
Understanding the Calculations
Calculating compound returns is relatively easy and is just a matter of consecutively multiplying the return. If the return is 7% for 5 years, that is equal to multiplying 1.07 five times, i.e. 1.075 = 1.402 (or a 40.2% gain).
In this case, we are adding additional investments each month but the idea is the same. Take the amount of money (or value of shares) and multiply by the return (>1 if positive or <1 for negative returns) after each period of the analysis.
Sources and Tools:
Stock and index monthly data is downloaded from Yahoo! finance is downloaded regularly using a python script.
No Comments »