Investment FV

[MPuser]

Hypothetically I want to save $500 per month into an investment
portfolio that earns 10% What is the future value after 30 years?

The real issue is...do I compound interest monthly or annually?
Remember, lets call this investment a collection of funds in a
portfolio. So I'm sure the difference in compounding methods would be
pretty significant. Which would be more accurate? I'd be curious to
see an FV function solution and a non-array solution if anyone has the
talents.

Thanks!

 

[Fred Smith]

The functions are pretty easy. If interest is compounded monthly:

=FV(10%/12,30*12,-500,,1)

If compounded annually:

=FV(NOMINAL(10%,12)/12,30*12,-500,,1)

Which one is right is, as you say, hypothetical. In my opinion, compounded
annually is the more accurate formula.

 

[joeu2004]

Hypothetically I want to save $500 per month into an investment
portfolio that earns 10% What is the future value after 30 years?
The real issue is...do I compound interest monthly or annually?

You would compound each investment in the portfolio at
the frequency appropriate for that investment. I assume
you tookthat into account when you say that total portfolio
annual return is 10%.

In that case, you can approximate the total portfolio
growth by computing the monthly rate that compounds to
10% annually. Thus, the monthly rate is RATE(12,,-1,1.1)
-- which is the same as NOMINAL(10%,12)/12.

So the future value after 30 years would be
FV(RATE(12,,-1,1.1),12*30,-500,,1).