Investment Calculator – Forbes Advisor – Forbes Advisor – Forbes
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Updated: Oct 26, 2021, 10:55am
Are you on track to achieve your investing goals? Plenty of factors go into understanding whether you’ll be able to hit your targets, including your contribution rate, rate of return, taxes and inflation, among others. Forbes Advisor’s investment calculator is designed to help you see whether you’re making the right moves to reach your investing goals.
Below our investment calculator, you can find helpful explanations of the data we need, instructions on how to get the most from the calculator and answers to common questions.
You’ll want to update our defaults with information that matches your own investment goals and financial situation. Here are more tips to help you get the most out of this calculator.
While you may not like to think about taxes, you’re almost certainly going to lose some of your investment earnings to Uncle Sam. That’s why it’s helpful to include your federal, state and local tax rates in any investment growth calculations, to get a more realistic picture of what you’ll need to reach your goals.
If you aren’t sure which tax bracket you’re in, check out the federal tax guidelines. Not all states or local governments tax investment earnings, but if yours does you’ll want to include their tax rates—and see whether you’re able to deduct state taxes on your federal return.
To keep things simple, this calculator assumes that you’re cashing out the gains you make each year. You’ll then owe taxes on these earnings based on your current income tax rate.
Investing is a long game, and you shouldn’t cash out every year. That lets you benefit from long-term capital gains tax rates, which are lower but are only available if you hold investment for at least a year.
It’s also important to consider tax rate if you decide to hold your investments in a tax-advantaged retirement account, like an individual retirement account (IRA) or 401(k), which allow you to avoid paying taxes on the earnings you make within the account.
This calculator shows the balances you might have in a taxable account as well as a tax-advantaged account to illustrate the great savings you can accrue with tax-advantaged accounts.
Inflation is when prices rise across the economy and eat away over time at the purchasing power of your dollars. Preserving and growing your purchasing power is one of the main reasons to invest in the first place.
Between 1925 to 2020, the Consumer Price Index (CPI), a common measure of U.S. inflation, rose on average 2.9% each year. But the inflation rate fluctuates constantly, and some years have seen astronomically high levels of inflation, like the 13.5% rate seen in 1980.
Read more: Why Is Inflation Rising Right Now?
By clicking “View Report,” you can see how much your investment’s future value would buy with today’s dollars. This may help you figure out if your current contributions will have you on track based on the current cost of your goals.
Time in the market is one of the most important factors in successful investing because it gives your money longer to compound and grow over time. By default, this calculator assumes that you’re making your contributions at the end of whatever cadence you decide to contribute.
For example, if you make monthly contributions, our calculator factors your investment growth based on deposits at the end of each month. But waiting even that small amount of time can cost you big over time.
Check the “Make Deposits At Beginning of the Period” box to compare how much more you might have if you simply invested your money as soon as you could each period. Over long periods of time, the differences can really add up, and that’s yet another argument for starting to invest as early as possible.
There are two main types of investment accounts: taxable accounts and tax-advantaged accounts. The distinction is important because you may be able to deduct any contributions you make using a tax-advantaged account, like a 401(k) or IRA, and you’ll also generally be able to postpone or avoid paying taxes on any investment gains that occur while your money remains in the account.
This calculator presents both scenarios—investing in a taxable or a tax-advantaged account—so you can see the impact choosing either type might have on your returns.
Note, however, that just because you might gain more from a tax-advantaged account doesn’t mean it’s always the right choice for your dollars. If you’ll need the money before retirement, for instance, you won’t want to lock it up in a 401(k) or IRA, which may charge penalties for early withdrawals. Instead, you’ll want a taxable brokerage account that you can tap at any time.
You can start investing the old fashioned way, with a brokerage account, or with an investment app. You’ll typically need to provide some personal information, like your name, age, address, Social Security number and income, and hook up a bank account. Be sure to check out our lists of the best brokerages and best investment apps for tips on where to get started.
You can start investing with $5 or less through some major brokerages, like Charles Schwab and Fidelity, as well as micro-investing apps, like Stash and Robinhood. You may also consider a robo-advisor, which will design and manage a portfolio of low-cost, diversified investments for you.
You’ll likely want to invest in a diversified portfolio of many investments, like index funds and exchange-traded funds (ETFs) that aim to copy the performance of major market indexes, like the S&P 500.
This helps you invest safely by not putting all of your investing eggs in any one basket. These index funds also tend to be the lowest cost investments you can find and historically have offered the same, if not better, returns than funds run by professional investors or stocks picked by individual investors.
The key for most people making money with stocks is investing in a diversified portfolio of index funds and ETFs for the long term. That means years, if not decades. This gives you time to recover from any short-term market dips you may experience.
If you don’t have at least a few years on your investing timeline, you may be better served by a high-yield savings account or certificate of deposit (CD).
Not all investment accounts are created equal. Different kinds are better suited for different goals. For retirement savings, you’ll probably want an IRA or 401(k) to take advantage of their tax benefits. Similarly, if you’re aiming to prepare for your child’s college tuition, a tax-advantaged 529 may be helpful. But if you have another goal in mind, particularly one that you plan to accomplish before you reach retirement age, you may turn to a taxable investment account.
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John Schmidt is the Assistant Assigning Editor for investing and retirement. Before joining Forbes Advisor, John was a senior writer at Acorns and editor at market research group Corporate Insight. His work has appeared in CNBC + Acorns’s Grow, MarketWatch and The Financial Diet.
Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
