103) Factors Affecting Investment Returns.
The amount of your investment depends on 3 factors:
1) Initial amount
2) Return rate
3) Time invested
The formula to calculate your future value of the invested amount is:
FV = PV (1+i)^n
where,
FV is the Future Value or the amount you get at the end of the investment period.
PV is the Present Value or the amount you invested in the beginning.
i is the return rate or interest rate of your investment.
n is the period or time you kept invested. Usually measured in years.
FV is the Future Value or the amount you get at the end of the investment period.
PV is the Present Value or the amount you invested in the beginning.
i is the return rate or interest rate of your investment.
n is the period or time you kept invested. Usually measured in years.
Note: ^ is the exponential symbol.
Calculation Example:
How much will $1000 be after 10 years with 8% annual returns?
FV = PV (1+i)^n
= 1000 (1+8%)^10
= 1000 (1.08)^10
= 1000 (2.15892)
= 2158.92
= 1000 (1.08)^10
= 1000 (2.15892)
= 2158.92
Answer: $2158.92
To make the most money:
1) invest a lot of money in the beginning. High PV.
2) have a very high return rate. High i.
3) keep invested for a very long time. High n.
1) invest a lot of money in the beginning. High PV.
2) have a very high return rate. High i.
3) keep invested for a very long time. High n.
Now let's discuss the 3 factors one by one.
1) A lot of money.
It's great that you have a lot to start with. You must have heard the saying, Money makes more money. This is the formula.
It's great that you have a lot to start with. You must have heard the saying, Money makes more money. This is the formula.
2) High return.
It's great if you got very high return rate. However do remember about the saying,
High Return, High Risk. You must be able to accept the high risk. There is no investment giving high return and low risk.
It's great if you got very high return rate. However do remember about the saying,
High Return, High Risk. You must be able to accept the high risk. There is no investment giving high return and low risk.
3) Long time.
Time is something that is available and given to one and all. Everyone has the same 24 hours.
Time is something that is available and given to one and all. Everyone has the same 24 hours.
If you only have little money, want to take medium risk with medium return, then you need more time to give you more money in the future.
In investment,
Time is your Best Friend.
So, do start to invest as early as possible and utilize the time that you have.
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