Investment Loan Definitions
- Loan amount
- This is the total loan amount you are planning on taking out. This amount is also used as the initial value of the appreciable asset or investment that you are making.
- Loan term in years
- The number of years you wish to analyze for this loan. This can be any number from one to 30 years.
- Loan interest rate
- The annual interest rate you are charged for this loan. This calculator assumes that your payments are made monthly and that interest is compounded monthly.
- Starting investment value
- The starting value of your investment. This may be higher than your loan amount if you either had an immediate gain or invested outside money (not received from the loan). This could be lower than your loan amount if not all of your loan value went directly into your investment. For example, if you had fees associated with the investment, or if you paid more than you could immediately receive on a sale of the investment.
- Investment rate of return
- This is the annually compounded rate of return you expect from your investments. For the purposes of this calculator, taxation is not factored into the results. If you pay taxes on the interest, dividends or capital gains from these investments you may wish to enter your after-tax rate of return.
The actual rate of return is largely dependent on the types of investments you select. The Standard & Poor's 500® (S&P 500®) for the 10 years ending Dec. 1st, 2015, had an annual compounded rate of return of 7.76%, including reinvestment of dividends. From January 1970 through to Dec. 2015, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 10.5% (source: www.standardandpoors.com). Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry significantly lower risk of loss of principal balances.
It is important to remember that these scenarios are hypothetical and that future rates of return can't be predicted with certainty and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. It is not possible to invest directly in an index and the compounded rate of return noted above does not reflect sales charges and other fees that Separate Account investment funds and/or investment companies may charge.
- Percent reinvested
- This is the percentage of the return generated by your investment that is reinvested. For example, if your investment generates $1,000 per month and you reinvest 50%, the value of your investment will increase by $500.