Investment Growth Calculator

How to calculate Investment Growth?

Investment growth is typically calculated using the compound interest formula, which factors in both your initial principal and regular periodic additions. This allows you to see how your money earns interest, which then earns more interest over time.

FV = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) - 1) / (r/n)]

Investment Growth: An Example

To illustrate the process, let's consider an investment starting with $10,000 and monthly additions of $500.

Step-by-step calculation:

1. Convert the annual interest rate to a monthly rate by dividing it by 12.
2. Apply the compounding formula to the initial $10,000 principal based on the total number of months.
3. Calculate the cumulative growth of the $500 monthly contributions and add it to the principal total.

Frequently Asked Questions

What is the rule of 72?

The Rule of 72 is a quick shortcut used to estimate how many years it will take for your investment to double. You simply divide 72 by your expected annual rate of return.

How does inflation affect growth?

Inflation reduces the purchasing power of your future money. When calculating long-term growth, it is often wise to subtract the projected inflation rate from your nominal return to see the 'real' growth.

Should I reinvest dividends?

Reinvesting dividends is one of the most powerful ways to accelerate compounding. Instead of taking the cash, you buy more shares, which in turn produce more dividends in the next cycle.