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Are you on the right track to achieving your investment goals? There are many factors that go into determining whether you’ll be able to meet your goals, including your contribution rate, rate of return, taxes, and inflation, among others. The Forbes Advisor Investment Calculator is designed to help you determine if you are making the right choices to meet your investment goals.
Under our investment calculator, you’ll find helpful explanations of the data we need, instructions on how to get the most out of the calculator, and answers to common questions.
How to use this investment calculator
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.
Include your income tax rates
While you may not like to think about taxes, you will almost certainly lose some of your investment income to Uncle Sam. This is why it is helpful to include your federal tax rates. , state and local in all investment growth calculations, to get a more realistic picture of what you’ll need to achieve your goals.
If you are not sure which tax bracket you are in, consult the federal tax guidelines. Not all state or local governments tax investment income, but if yours does, you’ll want to include their tax rates and see if you’re able to deduct state taxes on your federal return. .
To keep things simple, this calculator assumes that you cash out the earnings you make each year. You will then have to tax that income based on your current tax rate.
Investing is a long game, and you shouldn’t be cashing in every year. This allows you to benefit from long-term capital gains tax rates, which are lower but are only available if you hold the investment for at least one year.
It’s also important to consider the tax rate if you decide to keep your investments in a tax-advantaged retirement account, such as an Individual Retirement Account (IRA) or 401 (k), which allows you to avoid paying. taxes on the income you 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 achieve with tax-advantaged accounts.
Consider the role of inflation
Inflation is when prices rise throughout the economy and over time eat away at the purchasing power of your dollars. Preserving and increasing your purchasing power is one of the main reasons to invest in the first place.
Between 1925 and 2020, the Consumer Price Index (CPI), a common measure of U.S. inflation, increased an average of 2.9% each year. But the inflation rate is constantly fluctuating, and some years have seen astronomically high levels of inflation, such as the 13.5% rate seen in 1980.
Read more: Why is inflation rising right now?
By clicking on “Show Report” you can see how much the future value of your investment would buy with today’s dollars. This can help you determine if your current contributions will keep you on track based on the current cost of your goals.
Make your deposits as early as possible
Time in the market is one of the most important factors in a successful investment because it gives your money more time to compose and grow over time. By default, this calculator assumes that you are making your contributions at the end of the rate at which you decide to contribute.
For example, if you make monthly contributions, our calculator takes into account the growth of your investment based on the deposits at the end of each month. But waiting for even such a short time can cost you dearly over time.
Check the “Make deposits at the beginning of the period” box to compare how much more you could have if you simply invested your money as soon as you could in each period. Over long periods of time, the differences can really add up, and that’s yet another argument to start investing as early as possible.
What type of investment account do you need?
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, such as a 401 (k) or an IRA, and you will also generally be able to defer or avoid paying taxes on your earnings. investment that occurs while your money remains in the account.
This calculator presents both scenarios (investing in a taxable account or in a tax-advantaged account) so that you can see the impact that choosing either type could have on your returns.
Note, however, that just because you could earn more with a tax-efficient account doesn’t mean it’s always the right choice for your money. If you need the cash before retirement, for example, you won’t want to lock it in a 401 (k) or IRA, which can result in penalties for early withdrawals. Instead, you’ll need a taxable brokerage account that you can access at any time.
Investment Goal Calculator FAQs
How can I start investing?
You can start investing the old fashioned way, with a brokerage account, or with an investing app. You will usually need to provide personal information, such as your name, age, address, social security number and income, and open a bank account. Be sure to check out our lists of the best brokerage houses and best investing apps for where to start.
How much money do I need to start investing?
You can start investing with $ 5 or less through some large brokerage houses, like Charles Schwab and Fidelity, as well as micro-investing apps, like Stash and Robinhood. You can also consider a robo-advisor, who will design and manage a portfolio of diversified investments for you at low cost.
You’ll probably 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 stock indexes, like the S&P 500.
It helps you invest safely by not putting all of your investment eggs in one basket. These index funds also tend to be the cheapest investments you can find and have historically offered the same, if not better, returns than funds managed by professional investors or stocks chosen by individual investors.
How can I make money with stocks?
The key for most people who make money from stocks is to invest in a diversified portfolio of index funds and ETFs for the long term. It means years, even decades. This gives you time to recover from any short-term market downturn you may encounter.
If you don’t have at least a few years on your investment schedule, you might be better served by a high yield savings account or a certificate of deposit (CD).
What type of investment account should I use?
Not all investment accounts are created equal. Different types are better suited for different purposes. For retirement savings, you’ll probably want an IRA or 401 (k) to take advantage of their tax benefits. Likewise, if you want to prepare your child’s school fees, a tax-advantaged 529 can come in handy. But if you have another goal in mind, especially one that you plan to accomplish before reaching retirement age, you can turn to a taxable investment account.