Investment Return Calculator

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.

How this investment calculator works

The calculator provides an estimate of how your investment will grow, based on information you supply. Here's what you'll need to input into the calculator:

1. An initial investment amount: How much you plan to invest to start.

2. Any planned regular contributions. If you're going to make additional investments, enter that amount in the contribution amount field, then select whether you'll make that investment monthly or annually.

3. How long your investment will grow: This is how long you plan to leave your money in your investment — your investment's timeline.

4. Your expected rate of return: This will depend on the investment you've selected. As a point of reference, the S&P 500 has a historical average annual total return of about 10%, or roughly 7% after inflation.

5. How frequently your investment will compound: Some financial products, like savings accounts, will have a specific compounding frequency to input here. Stock market investments technically compound daily. If you're not sure, you can select annually to be conservative.

Investing vs. saving

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.

Types of investments

Investments are often categorized into asset classes. Common asset classes include stocks, bonds, cash, commodities and real estate.

Stocks

Stocks are shares of ownership in a company. Stocks are also known as equities. Investors typically expect stocks to earn a high rate of return over time, though they can be volatile in the short-term.

Bonds

Bonds are 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. Generally speaking, bonds that carry more risk — for example, from corporations rather than the U.S. government — will pay higher returns.

Mutual funds

Mutual funds are pooled investments, or investment "baskets," filled with many different assets. Mutual funds allow investors to purchase differen securities within a single investment. They are often managed by professional fund managers who aim to beat the market (though analysis shows they often don't). You can purchase funds that invest in stocks, bonds or other assets.

Index funds

Mutual funds are pooled investments, or investment "baskets," filled with many different assets. Mutual funds allow investors to purchase differen securities within a single investment. They are often managed by professional fund managers who aim to beat the market (though analysis shows they often don't). You can purchase funds that invest in stocks, bonds or other assets.

Exchange-traded funds

Exchange-traded funds are similar to index funds and mutual funds, but they trade on a stock exchange, which means they can be bought and sold throughout the day. They are often more tax-efficient than mutual funds.

CDs

CDs, sometimes called certificates of deposit, are fixed-income investments typically used for defined-term goals. For example, if you know you need to buy a car next summer, you might put your savings into a 6-month CD where you'll earn a set rate of return. The downside is that unlike the above investments, CDs generally charge a penalty if you need to take money out before the end of the term.

Commodities

Commodity investments are investments in raw goods, such as energy, metal or agricultural products. Examples of commodities include oil, gold, wheat and livestock. Investors who invest in commodities tend to do so through commodity funds (such as oil ETFs) or through futures trading.

Real estate

Real estate investing doesn't just mean investing in physical properties, though that's one way to do it. Many investors invest in real estate through REITs, or real estate investment trusts. These are companies that own a portfolio of real estate, often commercial properties or apartment buildings.

What's a "good" investment return?

Whenever we talk about "good" or typical investment returns, we need a big blinking disclaimer: They vary widely — in some cases, by the hour — and shouldn't be considered a guarantee in any shape or form. There's a reason the phrase "past performance does not guarantee future results" is used so frequently.

That said, it helps to have some general guidelines as you use this calculator:

• S&P 500 (index of U.S. large-cap stocks): 10% long-term historical average annual return.

• Bond mutual or index funds: 3% to 4% for U.S. government bonds; more for riskier bonds.

• High-yield savings accounts: 4% to 5%.

• CDs: 3% to 4%, depending on term.

In an ideal world, you'd run your calculations by plugging in your own expected investment return, based on the specific investments you've chosen. But we know that many people are using this investment calculator to run hypotheticals. Our suggestion: Run the numbers a few different ways, so you get a conservative and aggressive estimate. For the conservative side, knock the above returns down a couple points. For the aggressive, you could add a couple points.

How do you minimize risk while still earning a return?

By definition, investing comes with some risk. But one of the best ways to minimize that investment risk is ensuring your portfolio is diversified. 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, and different investments within the categories outlined above. For example, for optimal diversification, you wouldn't just invest in one stock — you'd build a portfolio of stocks from different industries and regions, and you'd allocate some of your portfolio to other investments, such as bonds.