Future Value of a Monthly Investment
Monthly Investment required for a desired Future Value (FV)
Future Value of a Single Investment
What percent of Y is X?
What is X percent of Y?
Percent Increase / Decrease from X to Y
Investment Information:
Are mutual funds and exchange-traded funds safe long-term investments? What returns should I expect?
Both mutual funds and exchange-traded funds (ETFs) are generally considered safer long-term investments compared to individual stocks or bonds because they offer built-in diversification. By pooling money from many investors to buy a wide range of assets, these funds help lower the risk that comes from any single investment performing poorly. This diversification, along with professional management, can help stabilize your portfolio over time.
However, the actual safety depends on the type of fund chosen:
Broad market index funds (both mutual funds and ETFs) tend to be less risky because they track large, diversified indexes. Sector or thematic funds (focusing on a specific industry or trend) can be more volatile and carry higher risk2.
Expected Returns
Stock index funds (e.g., S&P 500 funds) have historically returned about 7-10% per year over the long term, before inflation and fees.
Bond funds generally offer lower returns, typically in the 2-5% range, but with less volatility.
Actively managed funds may outperform or underperform index funds, but they usually come with higher fees, which can eat into returns over time.
Key factors affecting your returns:
The fund's investment focus (stocks, bonds, sectors, regions)
Whether the fund is actively or passively managed
The expense ratio and any associated fees
Market conditions during your investment period
Mutual funds and ETFs are both considered relatively safe for long-term investing due to their diversification and professional management. Your expected returns will depend on the fund's asset mix, but broad stock index funds typically provide 7-10% annual returns over long periods, while bond funds offer lower, steadier returns. Remember, all investments carry some risk, and past performance does not guarantee future results
How to Get Started Investing in Index Funds
- Set Your Investment Goals
- Decide what you want to achieve (e.g., retirement, wealth building, education savings). Index funds are best for long-term growth rather than short-term needs
- Choose How You’ll Invest
- DIY Approach: Open an account with an online brokerage (e.g., Fidelity, Vanguard, Schwab, Robinhood) and select funds yourself
- Robo-Advisor: Use a robo-advisor, which automates investing and rebalancing for you
- Financial Advisor: Work with a professional for personalized guidance (may involve higher costs)
- Open an Investment Account
- This could be a regular brokerage account or a tax-advantaged account like an IRA
- Most platforms let you open accounts online with a straightforward process
- Research and Select Index Funds
- Decide what market or index you want to track (e.g., S&P 500, total stock market, bond market) Consider factors such as:
- Expense ratio: Lower is better; many top funds have expense ratios under 0.05%
- Minimum investment: Some funds require as little as $0 to start
- Fund type: Mutual fund or ETF-ETFs trade like stocks, while mutual funds trade at end-of-day prices Popular low-cost S&P 500 index funds include:
- Fidelity Zero Large Cap Index (FNILX): 0% expense ratio, no minimum
- Schwab S&P 500 Index Fund (SWPPX): 0.02% expense ratio, no minimum
- Vanguard S&P 500 ETF (VOO): 0.03% expense ratio, trades like a stock
- Fund Your Account and Make Your Investment
- Transfer money from your bank to your brokerage account
- Place an order to buy shares of your chosen index fund
- Monitor and Adjust as Needed
- Periodically review your investments to ensure they align with your goals and risk tolerance
- Consider adding to your investment regularly for long-term growth
Additional Observations:
Index funds are reliable, more or less, on a long-term basis, depending on the fund. Reputable financial advisors recommend an index fund for investors saving for retirement, as it carries a lower risk of losing your principal.
Remember that, although the number of dollars returned after thirty years of investing is significant, the value of
those dollars (purchasing power) will not as large as it seemed when you started investing. A good reason to invest
in an index fund is to protect against inflation, which economists agree is mostly caused by government spending without
increasing taxes, which is good for a politician getting re-elected, but bad for consumers as it decreases the value of
each dollar spent. When gasoline was $0.05 per gallon, it took a significant amount of labor to earn that 5 cents. Now
that gasoline costs in some locations, 100 times more than that, it still takes a significant amount of labor to earn
that much money. This applies to all costs of living: It costs more dollars, but the dollars purchase much less than before.
This is why, if you think a certain amount is adequate for retirement today, it is very likely to not be enough in the future,
so you must estimate (guess, actually) how much you think inflation will reduce your spending power (future value).
For example, if you think one million dollars is needed for a comfortable retirement today, you would not be wrong to think
that in thirty years you would probably need three million dollars.
Finally, don't forget that the government will tax a percentage of your capital gains every time you sell part of your investment for cash.
Formulas Used:
- *Notes: APY = Annual Percentage Yield; monthlyRate = apy / 1200.0; ^ = Raised to the power of
- 1. futureValue = monthlyInvestment * (((1 + monthlyRate) ^ numMonths) - 1) / monthlyRate
- 2. investment = (desiredFutureValue * monthlyRate) / ((1 + monthlyRate) ^ numMonths - 1)
- 3: futureValue = investment * ((1 + monthlyRate) ^ numMonths)
- 4: percentage = (part / total) * 100
- 5: result = total * (percent / 100.0)
- 6: percentage = ((quantity2 - quantity1) / quantity1) * 100