Investment Return Calculator

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.

,

or

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.

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.

By definition, investing comes with some risk — otherwise, you're simply saving. However, one of the best ways to minimize 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.

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 a general guideline as you use this calculator. 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 below returns down a couple points. For the aggressive, you could add a couple points.

• 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.