Investment Return Calculator

Investment Guide

Understanding investment returns

Investment returns come from two sources: capital growth (the increase in the value of your assets) and income (dividends from shares, or interest from bonds). Together they make up your total return. Understanding how each component works, and how they interact, is essential for setting realistic expectations and building a sensible long-term plan.

Capital growth

Capital growth is the increase in the price of your investment over time. Global equities (shares in companies across the world) have historically delivered long-run capital growth of around 5–8% per year before inflation, though this masks enormous year-to-year variation. Individual years can see returns of +30% or −40%. The key insight is that time in the market smooths out this volatility: staying invested through downturns is usually more important than any individual year's return.

Dividend yield

Dividends are cash payments that companies make to shareholders, typically quarterly or annually, as a share of profits. The dividend yield is the annual dividend expressed as a percentage of the share price. UK equity income funds typically yield 3–5%; global index funds tend to yield 1.5–2.5%. Reinvesting dividends, rather than taking them as cash — is a key driver of long-run total returns, as reinvested dividends compound alongside the underlying capital growth.

What return rate should you assume?

For long-term planning (10+ years), many financial planners use a real (inflation-adjusted) return of 4–6% for a diversified equity portfolio. This is conservative enough to avoid overpromising but realistic based on long-run historical data. For bonds and cash, real returns are typically lower, around 0–2%. For short time horizons, cash or bonds are usually more appropriate than equities, the sequence of returns risk is too high.

Fees and their impact

Investment fees compound just like returns, but in the wrong direction. A fund charging 1.5% per year versus one charging 0.2% might seem like a small difference, but on £50,000 invested for 30 years at 7% gross, the difference in final value is around £90,000. For most people, low-cost index funds (available through ISA platforms for 0.1–0.25% per year total cost) are the most sensible starting point. Always check the Ongoing Charges Figure (OCF) before investing.

Tax wrapper: ISA vs pension vs general investment

Where you hold investments matters as much as what you hold. A Stocks and Shares ISA shelters all gains and income from UK tax, you can take money out at any time. A pension provides upfront tax relief (boosting your contribution by 20–45%) but locks the money until age 57. A general investment account (GIA) is flexible but subject to Capital Gains Tax on profits above the annual exempt amount (£3,000 in 2026/27) and income tax on dividends above the dividend allowance. Use your ISA allowance first, then pension, then GIA for most investors.