If either of these situations describes you, we have our Investment Calculator to help you move forward with the business of investing. Use it to run a few investment scenarios, and see what the long-term benefits of investing on a regular basis will do to help you grow your wealth.
How this investment calculator works
Investing is largely a numbers game, and numbers are often the force that drives the point home as to why you should invest. That’s the reason we created this Investment Calculator with compound interest. It will show you in simple terms the long-term effect that investing will have on your money.
It’s purposely designed to be simple to use. You’ll need to supply just four numbers:
- your initial investment
- how much you’ll invest each month
- the expected annual growth rate
- the number of years you’ll invest for
Once you’ve entered all four numbers, simply hit the Calculate button, and you’ll see how much money you’ll have at the end of your investment term, including how much your contributions earned over the years.
By showing you the future value of current investments, you’ll hopefully be motivated to begin investing now – even if you don’t know much about investing.
What you should know before investing
Before you invest, you’re going to want to pause and try to make (even very roughly) a financial roadmap. This includes deciding your goals including whether they are short term or long term (or both), and your risk tolerance.
More often than not, deciding all of this is not easy and requires you to really pause to figure out what your priorities are. And then we put off investing altogether because it’s just too many decisions.
And that’s the mistake….which brings us back to the why of investing and why to start now and tomorrow.
Why you should invest
As you might expect, there’s more than one answer to this question, so let’s take them one at a time.
To build long-term wealth
Even if you earn a high income, it’s just one component of wealth. The other is the assets you build up over the years. Building long-term wealth isn’t just about being greedy – it’s mainly to create options in your life. As wealth increases, those options increase as well.
For example, you might decide by the middle of your life that you want to change careers, start a new business, or just take some time off to decide on the next direction in your life.
That probably won’t be possible if you only have a few thousand dollars. But if you have a well-stocked investment portfolio, it’ll be much easier to do.
Because one day you’ll want to retire
Even if you love what you do for a living, one day you’ll either want or need to retire. Since traditional defined benefit pension plans are becoming increasingly rare, you’ll almost certainly need to rely on income from multiple sources. That will include, at a minimum, a monthly Social Security benefit, as well as regular distributions from tax-sheltered retirement plans.
Since Social Security benefits top out at $2,861 per month, you may find that to be inadequate if you’re accustomed to earning a generous six-figure salary. The only way to make up the difference will be through retirement savings. The larger your retirement portfolio, the better you’ll live in retirement.
This has been a fact of life for at least the past 50 years. What it means is that it’s not enough to simply put money in your bank account and hope to keep it safe.
Even if the principal value of your savings are safe, they’ll gradually be eroded by inflation. You’ll need to earn a rate of return on your money that’s much greater than the inflation rate. The only way to do that is by investing your money.
Different investment options
Where to invest is probably the biggest question for most would-be investors. If you’ve never invested before, choosing between the many options – and knowing which is best for you – can be more than a bit confusing.
The main question then is whether to invest your money in individual stocks, stock funds, or in some sort of managed portfolio option. The safest and best portfolio over the long-term is one that’s adequately diversified between two or three of the major asset classes – growth assets including stocks, real estate, and fixed-income investments.
In the most general sense, you’ll need to invest in assets that will produce long-term growth in value.
Based on the S&P 500 index, stocks have produced an average annual rate of return of about 10% per year going all the way back to 1926. Compare that with a top rate of about 2% on safe bank investments, which barely covers the recent average annual rate of inflation, which is also about 2%.
The money you invest in stocks will allow your portfolio to grow by 8% in real terms (the 10% return on stocks, minus the 2% annual rate of inflation). By keeping most of your portfolio in stocks, you’ll be able to grow your wealth well in excess of inflation.
If you plan to invest in stocks, you’ll have three basic options:
- Individual stocks
- Funds – mutual funds and exchange-traded funds (ETFs) that invest in stocks
- Investing through a managed option
Investing in individual stocks requires spending considerable time researching which companies you plan to buy. You’ll also need to create a diversified portfolio of several mutually exclusive stocks. This will not only spread your risk across different companies, but it will give you an opportunity to participate in the growth and income that various stocks will provide.
If you don’t have the time or inclination to choose your own stocks, you can invest in stock related funds. These are ready-made portfolios of stocks. You can choose to invest in a general index fund, such as one based on the S&P 500, or an actively managed mutual fund that seeks to outperform the general market by investing in companies with superior future prospects.
One way to make it even easier is to use You Invest by J.P. Morgan. You can build your own portfolio for free or pay a minimal advisory fee to have your portfolio expertly managed. You Invest helps you invest in stocks, exchange-traded funds, and more.
Disclosure – INVESTMENT PRODUCTS: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE
If managed options are more your speed, we think you’ll like Betterment. Betterment automatically puts your money into index funds, keeping your risk at a minimum while maximizing your rewards. Annual fees start at only 0.25% with no investment minimums, but if you want one-on-one expert portfolio management, fees start at 0.40% and you’ll need at least $100,000.
Spreading your equity investments into real estate is another excellent option because real estate investments have performed at least as well as stocks, and adds an extra measure of diversification to your portfolio.
Real estate investing also comes with three primary choices:
- Buy one or more individual investment properties
- Invest through real estate investment trusts (REITs)
- Invest through real estate crowdfunding platforms
Investing in individual properties requires a large upfront investment for the down payment. You’ll then need to obtain financing for the difference, which will also require debt service. Plus, you’ll need to find tenants and manage the income and expenses. Very few investors are cut out for that much activity. While buying an individual property can be very profitable, it’s also a very hands-on activity and can seem like a full-time job.
Roofstock lets you invest in properties that already have tenants living in them. Properties are chosen based on their likelihood of appreciation, as well as the supply and demand for single-family rental homes in the area. Roofstock also takes care of choosing property managers to help you protect your investment.
REITs are the most convenient way to invest in real estate. Each is like a mutual fund that holds a large number of similar properties. For example, you can invest in a REIT that holds residential apartment buildings, one for office buildings, or one that specializes in retail space. You’ll receive dividends from the rental income generated by the properties, then capital appreciation when they’re sold. Meanwhile, REITs trade on major exchanges, just like stocks.
You Invest by J.P. Morgan helps you put your money into a variety of asset types, including REITs. With You Invest Trade, you pay no fees and can get started with even a small contribution. If you want to have your investments managed by experts through You Invest Portfolios, state your interest in real estate and let the J.P. Morgan team take it from there.
Real estate crowdfunding is a higher risk, but potentially higher reward way to invest in real estate. You’re often investing in special situations, and not everyone has the capacity for that kind of risk.
A great example of a crowdfunding platform is Fundrise, which lets you invest in multimillion-dollar deals for as little as $500. Typically, you’d need to be an accredited investor to participate in high-dollar real estate deals, but crowdfunding lets even beginners buy in.
While you should maintain a certain amount in safe investments, like bank deposits, US Treasury securities, and corporate bonds, these investments should generally be minimal and the rest should be invested in growth type assets.
The primary purpose of safe investments is to provide liquidity in case of an emergency, and stable value for at least a portion of your portfolio. Fixed income investments are the easiest investments to make, not only because they’re safe, but because they’re available just about everywhere. You can invest in bank CDs, US Treasury securities, corporate bonds (which are best invested in through funds), or money market funds.
Not only are they available just about everywhere, but nearly every investment service available offers a fixed income or cash option.
For a low-risk, high-reward investment, look at CIT Bank’s money market accounts and CDs. They pay APY on a money market account, requiring only a $100 minimum opening deposit. If you’re looking at CDs, you can get APY on CIT Bank’s no-penalty CD. If you need to withdraw the money, you can remove it penalty-free, along with any interest you’ve earned.
Discover is another option for fixed-income investments. Their money market account offers APY, increasing to APY once you have a balance of $100,000 or more. They also offer competitive rates on CDs, starting at 1.75% for a 12-month term.
Use the Investment Calculator to run various investment scenarios. Once you see what regular investing can do to help you build wealth, we’re sure you’ll be hooked!
So there you go – now you have no excuse not to invest and build wealth for your future.
- How To Invest: The Smart Way To Make Your Money Grow
- Best Investment Accounts For Young Investors