Using An Investment Calculator To Calculate ROI on Stock

July 21, 2022 3 min read

Using An Investment Calculator To Calculate ROI on Stock

Using An Investment Calculator To Calculate ROI on Stock

Have you ever invested in something, and all you ever thought about was what you’d make in the end? Surely, you must have. Everyone thinks about the Return On Investment (ROI) before investing in something – it determines whether it’s a good deal or not. However, people just don’t arrive at an ROI based on random figures; it must have been calculated using certain variables. 

Ideally, the longer the period you invest money, the higher the chances of getting more returns. That means you are likely to get more over 10 years than in 5 years. To get the perfect estimate of your returns from an investment, you need an investment calculator

What is an Investment Calculator?

The investment calculator is a tool often used to help arrive at an estimated amount of what you will be getting at the end of an investment period. You can get an idea of how stock investments will grow every year until the end of the investment period. It strategically explores an initial investment using variables such as interest, expected return rate, and time (month or annual). 

How Can You Use An Investment Calculator for Stocks?

Let’s say you want to invest in stocks worth over $20,000, and you want to know how much you will be making in 10 years with 10% expected rate of returns, here is how to: 

Step 1: Enter Your Initial Investment

If you want to calculate your ROI, you definitely have to enter an initial investment amount, which in this case, is $20,000. What you get after the period depends on this amount. If you have more than this to put, it only increases your chances of making more. 

Step 2: Choose a Regular Contribution Option

If you would be investing, you know you have to keep your regular contribution to something you can afford. You can choose whatever is comfortable out of the options provided – monthly or annual. On many occasions, especially with stocks, monthly contributions are preferred because of its potentials of increasing over time. That means you are bound to get higher growth in a monthly contribution of $200 than the annual equivalent, $2,400. 

Step 3: Choose Investment Period

The next thing you have to do on an investment calculator is choose the investment period. Every investment has a maturity date, i.e., how long you want to keep the money or stocks to make enough profits. Now the rule is: the longer you invest, the more the profits you’d make. 

You shouldn’t invest any less than five years for stocks since volatility post-purchase plays a determining role in how much you will get eventually. 

Step 4: Choose Return Rate

The last factor important to successfully using an investment calculator is the return rate. For someone investing in long-term stocks, you shouldn’t expect nothing less than a 10% return rate every year. With that much percentage, you can make gains. However, if it is any less, i.e., below 10%, you may not be making so much within a period of 5 years. 

Investment Calculator: Price Returns Vs. Total Returns

Knowing how to use an investment calculator is not enough; you also need to tell the difference between the two types of investment returns, i.e., Price Returns and Total Returns. 

Price Return is when there is a change in stock price within a period without considering account dividends or cash payments. For instance, if you bought a stock at $100 in one year, and in the next, the price increases to $150, that means the price is up by 50%. On the other hand, Total Return considers cash payouts, including dividends, making it higher than the Price Return. 

In short, dividends set the difference between both investment returns. 

Can You Use Any Investment Calculator?

With an investment calculator, you can take calculated risks and get accurate results regarding your investments. However, as a tool that considers important factors like investment amount, expected return rate, regular contributions, and investment period, you may have several options at your disposal. 

You shouldn’t just go for any investment calculator you see; sometimes, take a little survey and see what the calculator offers. If you choose any calculator, you may just arrive at different results that never do investors any good. 

Overall, the importance of an investment calculator cannot be overemphasized. You need this tool to get accurate results and see if the stocks investment is worth it or not. Remember, the longer the stocks period, the higher the profits (or gains) you are likely to make.