What it works out
A goal planner turns the regular investing sum around. Instead of asking what a monthly amount grows to, it asks what monthly amount reaches a chosen figure by a chosen date.
Two things do the work: the money paid in, and any growth on it. The shorter the time, the more of the target has to come from the money paid in, because growth has had little time to compound. The calculator also gives the figure with no growth at all: the target less what is held, divided by the number of months. That figure rests on no assumption.
If the goal is something whose price is expected to rise, the target can be raised by an assumed rise in prices, so that the plan aims at what the thing may cost then and not what it costs now.
What the sum leaves out
- Growth is not certain and can be negative. A plan that depends on growth can arrive short, and money needed on a fixed date is exposed to a fall just before that date.
- The monthly amount is level and paid at the end of each month.
- Tax and charges are left out.
- The answer is only as good as the target. A cost that is guessed is still a guess after the arithmetic.
Questions people ask
- How much has to be saved each month to reach a goal?
- With no growth: the target, less what is already held, divided by the number of months. With growth, less than that, by an amount that depends on the rate and the time. The calculator shows both.
- Does growth make much difference over a short time?
- Not much. Over two or three years most of a target comes from the money paid in, and a fall in value near the end can outweigh the growth that was hoped for. Over twenty years the assumed rate dominates, which is also why a long plan is so sensitive to it.
- What if the assumed rate turns out wrong?
- Then the plan arrives above or below the target. Entering a lower rate, zero or a negative one shows how far below, and what monthly amount that rate would have needed.
Arithmetic on figures you supply, for study. Educational information, not investment advice or a recommendation to trade. It takes no account of your circumstances, and nothing typed into the calculator is sent or stored.