Investment Return Calculator

💰 What Are Investment Returns?

Investment returns are simply how much money your investments make (or lose) over time. Think of it as your money working for you instead of sitting in a bank account earning practically nothing. Returns come from two main sources: your investments growing in value (capital gains) and payments you receive along the way (dividends, interest, rent).

Here's the thing though – not all returns are created equal. A 10% return sounds brilliant, but if inflation is running at 8%, you're only really making 2% in terms of what you can actually buy. That's why smart investors always think about "real returns" – your gains after inflation has taken its cut.

🔑 Types of Investment Returns

• Capital Gains: Your investment goes up in value (bought £1000, sold for £1200)
• Dividends: Companies sharing profits with shareholders (usually quarterly payments)
• Interest: Fixed payments from bonds, CDs, or savings (predictable income)
• Rental Income: Monthly rent from property investments
• CAGR: Compound Annual Growth Rate – the "smoothed out" yearly return

⚖️ Risk vs Return Reality Check

Here's the fundamental rule: want higher returns? You'll need to accept higher risk. There's no such thing as high returns with zero risk (if someone tells you otherwise, run!). The key is finding your sweet spot based on your timeline and sleep-at-night factor.

• Cash/Savings: 0.5-4% return, virtually no risk
• Government Bonds: 2-5% return, very low risk
• Corporate Bonds: 3-7% return, low-medium risk
• Stock Market Index: 7-10% historical average, medium-high risk
• Individual Stocks: -50% to +500% potential, high risk

🎯 Investment Strategies That Work

Buy and Hold: Pick quality investments and ignore the noise. Warren Buffett's favourite approach – time in the market beats timing the market.

Dollar Cost Averaging: Invest the same amount regularly regardless of market conditions. Buying £500/month automatically buys more shares when prices are low, fewer when high.

Index Investing: Can't beat the market? Join it! Index funds give you instant diversification with rock-bottom fees. FTSE 100 tracker = owning a tiny piece of the UK's 100 biggest companies.

The 60/40 Rule: 60% stocks for growth, 40% bonds for stability. Adjust based on your age – younger = more aggressive, older = more conservative.

⏰ Time Horizon Guidelines

• Emergency Fund (0-1 year): High-yield savings, instant access
• Short-term (1-3 years): CDs, government bonds, money market
• Medium-term (3-10 years): Balanced funds, corporate bonds
• Long-term (10+ years): Stock market, growth investments
• Retirement (20+ years): Aggressive growth when young, gradual shift to conservative

📊 Common Return Expectations

• Historical stock market: ~10% annually (including dividends)
• Realistic planning: Use 7-8% to account for inflation and fees
• £10k invested at 8%: £21,589 after 10 years, £46,610 after 20 years
• Rule of 72: Money doubles every 72 ÷ return rate years
• ISA advantage: All gains are tax-free (£20k annual limit)