Future Value Calculator

Predicting the Future Value of Investments

It’s impossible to predict the future. That’s why investing has some element of risk. For wise investors, there are calculations to help estimate the future value of an investment by making certain assumptions. The most basic of these calculations is Future Value. With future value, investors can understand if their current financial decisions will produce favorable returns over time.

Let’s take an example. Tom has $10,000 that he wants to invest in corporate stock. The historical growth rate for this company’s stock has been 7% per year. Tom plans to hold this stock for ten years and wants to see how much the $10,000 will be worth in the future. This will help him decide if the investment is worth it.

Investors often use the future value calculation to decide between different investments. For example, two investments may have different levels of risk. By understanding the future value of each, an investor can determine if the one investment creates enough future value to justify a higher risk. A future value calculator makes running multiple scenarios quick and easy.

How to Use the Future Value Calculator

Learning how to calculate the future value of money with this calculator is simple. First, identify the starting amount you want to invest, the anticipated interest rate, and the length of time you plan to hold the investment.

• Step 1: Enter the information into each field (N, PV, and I/Y).
• Step 2 (Optional): If you plan to add periodic deposits or your investment pays regular annuity payments, you can add this amount in the PMT field. Also, you can select whether you deposit at the beginning or end of the compounding period. This will affect the final future value amount. If you are unsure, select the End option to be conservative. If you don’t plan to have periodic deposits, enter 0 into the field.
• Step 3: Click Calculate and review the results. The results will provide a breakdown of numbers, the future value amount, and graphs showing the investment growth. The Future Value Calculator will also provide a schedule showing each period’s start and end balances.

Real Example

Let’s say you have $25,000 to invest and want to see the future value in 15 years. You’re anticipating an interest rate of 5%. You will also receive an annuity from this investment of $500 per year (which will be reinvested). The annuity payments will be made after each compounding period.

To calculate the future value of your investment, enter the following values:

• Number of Periods (N): 15
• Starting Amount (PV): $25,000
• Interest Rate (I/Y): 5%
• Periodic Deposit (PMT): $500
• PMT timing: Select the End of the compound period.

Once you hit the Calculate button, you’ll see that the future value of your investment will be $62,762.49.

Understanding the Basic Future Value Formula

Calculating future value is a relatively straightforward calculation. A future value calculator should be able to do most of the work. Still, it’s a good idea to have a basic understanding of how the calculations work and how to understand the results.

The formula to calculate basic future value is:

$$FV = PV (1 + \frac{I}{Y})^{n}$$

• FV = Future Value of the investment (including all interest and annuity payments)
• PV = Present Value (starting amount before any interest payments)
• I/Y = Interest or Yield Rate
• N = Number of periods (number of months, years, etc.)

Periodic Deposit Calculation

In many cases, investors add money to their initial investment over time. For example, the investor may start with a $10,000 investment and decide to invest an additional $1,000 each year. This is where the calculation gets complex. Fortunately, our online calculator can easily consider this when calculating the results.

Key Benefits and Helpful Tips

Understanding the future value of money can make you a more forward-thinking investor. Knowing how to make the most of your knowledge of the future value calculation can significantly impact your success in selecting and maximizing your investments.

Key Benefits:

• No Memorizing Formulas - The future value calculation can become extremely complicated, especially when adding additional periodic deposits. The future value calculator makes it easy to calculate the results. In addition, the charts are helpful for people who want to see a graphical representation.
• Quick Investment Decisions - Being able to analyze investments quickly is critical. This tool allows users to evaluate multiple investment options in little time.
• Understanding Investment Growth - With this tool, you can see how much growth comes from interest or periodic deposits. If you have a goal, you can adjust the PMT amount to see how much extra you need to contribute each period to hit your goal.

Helpful Tips:

• Factor in Inflation - Money loses value over time due to inflation. Don’t forget to factor this into your calculation. For example, if you expect the interest rate on your investment to be 10% and inflation to be 3%, enter 7% to see the future value in today's dollars.
• Month Calculation - In most cases, interest and yield rates are shown in annual terms. If you use months as your chosen period, divide the annual interest rate by 12 to find the monthly interest rate. For example, a yearly interest rate of 8% would be about 0.67% each month.
• Use longer periods - Investments in certain asset classes such as stocks and cryptocurrency can be volatile. Analyzing investments over a longer period can help account for short-term dips in future worth.
• Receive lump sum payments - Future value can be helpful when deciding between a lump-sum payment or regular payments over time. For example, accepting $10,000 today is better than $1,000 yearly over ten years. The future value is nearly $7,000 more because of investment growth!