Overview
Main Menu Name: Analyzer
Tracks the life of an investment over 45 years. It calculates the balance at the start of each year, the income earned in each year, and the balance at the end of each year.
In this article:
Background
The outcome of any investment program reflects the combined impact of several variables. Some of these are under the control of the investor and others are not. The investor can usually manage the amount of the beginning investment or can begin an investment program without any beginning balance. Additional contributions to the fund also are generally under the individual's control.
Withdrawals may be at the discretion of the investor, but are usually influenced by outside factors as well. For example, a fund may be created to pay for a child's college education. The amount of each withdrawal will depend on tuition charges and other fees that are outside the investor's control. Also, other funds may become available to pay the education costs, and the fund may remain intact.
Another very important factor affecting the value of the fund over time is the rate of return earned on the investment. A high rate of return may allow smaller contributions to be made in order to reach a particular goal. Alternately, a high return may permit larger withdrawals than would otherwise have been expected. A low rate of return may force larger contributions or result in smaller withdrawals.
The time horizon of the investment will also affect the value of the fund. Compound interest is a powerful force, but it normally has its strongest impact of relatively long time periods. The bulk of earnings from interest will come during the last years of an investment period.
The value of this calculation is its ability to show the combined effect of all of these factors, and to allow the user to make changes and determine the impact of those changes on the investment outcome.
Why should I use this calculator?
- To evaluate the attractiveness of an investment.
- To determine the adequacy of an investment to fund a series of cash withdrawals (for example, a college funding program).
- To determine what cash contributions will be needed to meet a planned series of withdrawals.
- To determine the remaining balance in an investment fund after a projected series of contributions and withdrawals.
Getting Started
The outcome of any investment program reflects the combined impact of several variables. Some of these are under the control of the investor and others are not. The investor can usually manage the amount of the beginning investment or can begin an investment program without any beginning balance. Additional contributions to the fund also are generally under the individual's control.
Withdrawals may be at the discretion of the investor, but are usually influenced by outside factors as well. For example, a fund may be created to pay for a child's college education. The amount of each withdrawal will depend on tuition charges and other fees that are outside the investor's control. Also, other funds may become available to pay the education costs, and the fund may remain intact.
Another very important factor affecting the value of the fund over time is the rate of return earned on the investment. A high rate of return may allow smaller contributions to be made in order to reach a particular goal. Alternately, a high return may permit larger withdrawals than would otherwise have been expected. A low rate of return may force larger contributions or result in smaller withdrawals.
The time horizon of the investment will also affect the value of the fund. Compound interest is a powerful force, but it normally has its strongest impact of relatively long time periods. The bulk of earnings from interest will come during the last years of an investment period.
The value of this calculation is its ability to show the combined effect of all of these factors, and to allow the user to make changes and determine the impact of those changes on the investment outcome.
Entering Data
- Start Year: Enter the first year of the analysis.
- Balance at Start of Year: Enter the beginning balance of the investment at the start of the analysis (Start Year).
- Contributions: Enter the annual contributions made to the investment for each pertaining year.
- Withdrawals: Enter the annual withdrawals made to the investment for each pertaining year.
- Rate of Return: Enter the after-tax rate of return on the investment.
Results
The annual interest earned on the beginning balance is calculated by adding contributions and subtracting withdrawals and arriving at an ending balance for each year. The ending balance is then carried over as the beginning balance for the following year.
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