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Understanding investment returns
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." And thanks to compounding returns, the longer you leave your money invested, the higher your potential returns could be.
To see how this works, check out the growth of $5,000 below. This chart shows how an initial investment could potentially grow, year by year, over 20 years at annual rate of 8%. Note that this doesn't include any additional contributions any time in the 20-year period.
Growth of $5,000 over 20 years
Calculating your investment growth
Now, use the calculator below with your own numbers to get an idea of how your stock investments might grow over time. It can also help to explore how much the initial investment could grow if you were to contribute an additional amount either monthly or yearly.
How to use NerdWallet’s investment return calculator:
Enter an initial investment. If you have, say, $1,000 to invest right now, include that amount here. If you don’t have an initial amount to invest now, you can enter $0.
Enter your regular contributions. If you plan to invest a certain amount every month into your investment account (a strategy known as dollar-cost averaging), include this amount after selecting the “monthly” option. Or, if you’d rather invest one lump sum once per year, choose “annually” and include your planned annual contribution. If you do not plan to make regular contributions, select either option and enter $0. Note: Although monthly contributions of $100 and an annual contribution of $1,200 seem like they should have the same result, this will generate different end balances. Why? Monthly contributions are compounded monthly rather than annually, and compounding at more frequent intervals leads to higher growth over time.
Choose how long your investment will grow. How long do you plan to keep your money invested? If you’re investing in stocks, it’s generally a good idea to stay invested for at least five years to weather any volatility post-purchase.
Enter your expected rate of return. For a point of reference, the S&P 500 has a historical average annual total return of about 10%, not accounting for inflation. This doesn’t mean you can expect 10% growth every year; you could experience a gain one year and a loss the next. But if you keep your money invested for the long term, the goal is for these gains and losses to average out over time, ideally ending in the black by the end of the investment period.
A note on total returns vs. price returns
Something to consider when calculating investment return: Is it the price return or the total return?
Price return is simply 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.