Having a solid investment strategy is crucial for building long-term wealth. One useful tool for mapping out an investment plan is Fidelity’s free investment calculator. This handy online tool allows you to model different investment scenarios to see the potential growth over time. Understanding how to properly utilize Fidelity’s calculator can empower you to make informed decisions about your financial goals. In this article, we’ll explore the key features of Fidelity’s investment calculator and how best to leverage it for your needs.
Input Your Current Assets and Set Future Contribution Amounts
Fidelity’s investment calculator allows you to input your current investment assets across various account types like 401ks, IRAs, and taxable accounts. This provides a starting point for projections. You can then model regular future contributions — say monthly or annually — to see how additional savings will compound over time. Testing different contribution amounts shows the impact extra savings can have. Starting early and consistently contributing, even small amounts, is key.
Factor in Expected Investment Returns
A key input is the expected annual return on your investments. Historical market returns over long periods are around 7-10%, but you can model different return rates. Start conservative at 6% or lower. The calculator runs projections and shows you the effects of compound growth over 5, 10, 20+ year periods. Pay attention to how increasing returns accelerate growth down the line.
Account for Inflation
One often overlooked factor is inflation, which erodes purchasing power over time. Fidelity’s calculator factors in inflation based on historical averages. You can see how your investments need to grow at a rate above inflation to increase real purchasing value. This shows the importance of maximizing returns through proper asset allocation.
Model Different Retirement Scenarios
A key feature is modeling possible retirement scenarios. You can set different potential retirement ages and expected expenses in retirement. The calculator shows whether you’re on track to save enough or need to adjust your strategy. Testing different ages and expenses paints a picture of how preparation early on affects retirement readiness.
Use Multiple Simulations to Stress Test Your Plan
Rather than relying on one projection, run multiple simulations using different return and inflation rates. Vary contribution amounts and weights between tax-advantaged and taxable accounts. See the range of potential outcomes to stress test your investment plan. Identify any shortcomings so you can course correct when needed. Regularly revisit the calculator to update projections as your situation evolves.
Fidelity’s free online investment calculator is a valuable planning tool for mapping your financial future. With smart inputs and multiple simulations, you can chart a course aligned with your investment objectives and long-term needs. The key is leveraging the calculator early and often to make informed decisions today that pay off enormously down the road.