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Time Value of Money - Version 9/99
All Data Entry cells show up in red
Many of your have seen illustrations that compare the investment results of
two individuals, one that started early and one that waited. The results of the
one that started early generally exceeds the results of the one that waits. This
calculator provides this same illustration in an interactive model that can be
customized to fit many client’s situations. The example in this calculator
posted on our web site shows the comparison of three investors. The first one,
person A, started investing $2000 per year at age twenty, and continued the
process through age 27. This means he or she invested $16,000. This investor
then allows the account to accumulate until age 65. The second investor, or in
the web example person B, waited until age twenty-eight to start investing and
saved $2000 each and every year until age 65 (total invested is $76,000). We
assume a 10% investment rate of return in this example. You will notice that
person A at age 65 has more money at age 65 than person B. The "Person
C" section can be used to determine the amount any other age person would
have to save to achieve the same results that Person A or B achieved. This can
be done by trial and error, or with the use of Excel’s Goal Seek feature. (See
Excel’s help section for information on how to use Goal Seek)
Data Entry:
Frequency of Contributions: Use the pull-down menu to indicate the
frequency of payments. Keep in mind that you will also indicate, in another
section, the total amount invested each year. This pull-down simply determines
whether this annual amount is achieved by periodic installments or as an annual
lump sum.
Investment Return: Indicate here the "net of expenses" rate of
return you want to assume. For example, if you believe your investment will
gross 12% with 1% expenses, then enter 11% in this cell.
The following are the same for persons A, B & C.
Contributions begin at age: Enter here the age at which each person will
begin investing. The valid age range is from age 20 to 65. If you want to
illustrate a one-time investment you should enter the beginning and ending age
as the same.
Contributions end at age: Enter here the age at which each person will
stop investing.
Total Annual Contributions: Enter here the total annual invested amount.
Keep in mind this amount may be achieved through periodic installments as
indicated by the pull-down menu.
This calculator will demonstrate for you the true time value of money. One’s
greatest financial asset is time. |
