The goal of any investment is to get more cash out than you put in. The profit (or loss) you incur is your "return on investment." Thanks to compounding returns, the longer you leave your money invested, the higher your potential returns could be. Use our basic investment calculator to estimate how your investment could grow over time.
Investing vs. saving
When you have extra cash, one significant factor in determining what to do with it —and what sort of return you should expect — is your risk tolerance.
Saving typically requires you to take on no risk, but offers low returns. Your money will grow slowly over time, in some cases not outpacing inflation.
With investing, you take on more risk in anticipation of higher returns. Investments exposed to low risk tend to generate low or moderate returns; investments that carry high risk offer the potential for higher rewards.
One way to identify how much risk to take is to focus on the particular financial goal you're working toward. You can think about this as the "job" you've assigned to your money. And, as in life, there are different tools for different jobs.
For short-term goals — such as a pending home or car purchase or setting up an emergency savings account — you generally want to save, not invest. So having money in a safe and easy-to-access place matters most. Savings, money market or certificates of deposit accounts covered by the Federal Deposit Insurance Corp. allow cash to earn interest without exposing it to risk.
For a goal that requires growing your money over the long term —for example, retirement, or college savings for your kids —you may opt to take on more risk to generate higher returns. Investing in the stock market is one of the most common places to do so.
You can use the calculator to play around with how different returns change how much money you might accumulate over various timeframes.
A savings account is a place where you can store money securely while earning interest.
A savings account is a place where you can store money securely while earning interest.
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Total return vs. price return
Something to consider when calculating investment return: Is it the price return or the total return?
Price return is the annualized change in the price of the stock or mutual fund. If you buy it for $50 and the price rises to $75 in one year, that stock price is up 50%. If the following year the price closes at $60, the stock price fell 20% that year. If it closes at $65 the third year, it increased by 8.3%.
Total return factors in regular cash payments from the investment, such as dividends. Over the past 30 years, the difference between the total return and price return of the S&P 500 has been about two percentage points annually, on average.
Types of investments
Investments are often categorized into asset classes. Common asset classes include stocks, bonds, cash, commodities and real estate.
Stocks: Shares of ownership in a company. Stocks are also known as equities. Stock markets are where shares of ownership in a company, stocks, are sold.
Bonds: Loans made from an investor to corporations or governments. The investor receives interest while the corporation or government uses the loan to fund its operations.
Funds: Pooled investments, or investment "baskets," filled with hundreds or thousands of assets. Index funds and exchange-traded funds offer easy diversification at many price points and are popular among all types of investors. You can purchase funds that invest in stocks, bonds or other assets.
Investing doesn't require regularly trading any of the assets above. While some advanced, active investors participate in a form of speculative investing called day trading, many investors buy and hold assets for the long term and can reap similar or even higher rewards doing so.
Additionally, diversification among assets is key when investing. Diversification is a financial strategy that spreads your investments across assets to reduce risk and exposure to market volatility. That means holding a portfolio that includes different types of investments.
FAQs
Tack on things like fees and taxes, and even 7% is probably a relatively high long-term return assumption for a portfolio, especially based on market forecasts today. Had you been invested in a balanced portfolio, your return after considering volatility and inflation would have been closer to 5%.
How much will I have if I invest $1000 a month for 30 years? ›
Investing $1,000 per month for 30 years at a 6% rate of return hypothetically will give you an investment portfolio worth more than $1 million. This result is hypothetical because it doesn't take into account taxes, fees, varying rates of return and other variables, such as extended market downturns.
How much money do I need to invest to make $3,000 a month? ›
Imagine you wish to amass $3000 monthly from your investments, amounting to $36,000 annually. If you park your funds in a savings account offering a 2% annual interest rate, you'd need to inject roughly $1.8 million into the account.
Is 12% return on investment realistic? ›
Why 12% is an optimistic benchmark. There's a reason that 12% tends to be used as a benchmark, according to Blanchett. The average historical return from 1926 to 2023 is 12.2%, according to a monthly data set called stocks, bonds, bills and inflation, or SBBI.
What is a good return on a $500000 investment? ›
Average Rate of Return: This is more difficult to calculate because by their nature private equity firms and hedge don't always report their losses and earnings. However, most estimates suggest that you can expect average returns of up to 14%.
How much money do I need to invest to make $1000 a month? ›
Invest in Dividend Stocks
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
How much money do I need to invest to make $4000 a month? ›
Receiving $4,000 per month translates into an annual total of $48,000, excluding the need to pay any income taxes. With a 4% dividend yield, it'd take a required portfolio size of $1.2 million to make that cash flow of $48,000. Of course, having a higher dividend yield would mean less of a required nest egg.
What if I invested $500 a month in S&P 500? ›
One way to become a millionaire
Over its history, the S&P 500 has generated an average annual return of 9%, including re-invested dividends. At that rate, even a middle-class income is enough to become a millionaire over time. $500 a month, for example, is less than 10% of the median U.S. household's monthly income.
What will 100k be worth in 30 years? ›
Answer and Explanation: The amount of $100,000 will grow to $432,194.24 after 30 years at a 5% annual return. The amount of $100,000 will grow to $1,006,265.69 after 30 years at an 8% annual return.
How much to invest per month to become a millionaire in 5 years? ›
Suppose you're starting from scratch and have no savings. You'd need to invest around $13,000 per month to save a million dollars in five years, assuming a 7% annual rate of return and 3% inflation rate. For a rate of return of 5%, you'd need to save around $14,700 per month.
Buy a low-cost index fund that tracks the S&P 500; your $100,000 could grow to $1 million in about 23 years. You'll get there even faster by investing additional funds. Add $500 monthly and reach $1 million in just 19 years. Of course, past results don't guarantee future outcomes, but history is on investors' side.
How much money do you have to make a month to make $100000 a year? ›
$100,000 a year is how much a month? If you make $100,000 a year, your monthly salary would be $8,333.87.
How does Dave Ramsey get 12 percent? ›
It stems from the historical average annual return of the S&P 500 (with dividends reinvested). Ramsey's website cites a New York University dataset which says the S&P 500 average from 1928 to 2023 was 11.66%. Over a shorter period of time, from 2014 to 2023, it was as much as 12.98%.
Is it possible to get a 20% return on investment? ›
It's important to carefully research and monitor the market, diversify your investments, and consider a long-term investment strategy to potentially achieve your financial goals. Swing trading or positional trading is best to make 20% ROI .
Is an 8% return realistic? ›
As a result, the 8% rate of return is a surface-level indicator of the investment's performance. In an environment with high inflation and taxes, your real return could be next to nothing. That said, investments can still be an excellent source of retirement income.
Is 7% return on assets good? ›
Return on assets (ROA) is a key gauge of a company's profitability. The ROA ratio measures a company's net income relative to its total assets. A good ROA depends on the company and industry, but 5% or higher is considered good.
Is 7 a good rate of return? ›
Is a 7% Return on 401(k) Good? A 7% return on a 401(k) falls within the average rate of return for most 401(k)s, which is between 5% and 8%.
Is 7 ROI good for real estate? ›
Generally, a good ROI for rental property is considered to be around 8 to 12% or higher. However, many investors aim for even higher returns.
