What Is Future Value (FV)?
The value of a current asset at a future date based on an assumed rate of growth is known as future value (FV). Investors and financial planners care about future value because it helps them estimate how much an investment made today will be worth in the future.
Knowing what the future value will be allows investors to make sound investment decisions based on their anticipated needs. External economic factors, such as inflation, can, on the other hand, have a negative impact on the asset's future value by eroding its value.
Future value can be contrasted with present value (PV).
Future Value Calculation Using Simple Interest
FV = I x {1 +(R x T) }
Future Value Calculation Using Compound Interest
FV=I×(1+R)^T
Advantages of Future Value
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Future value enables planning. A company or investor may be aware of what they have today and may be able to make some educated guesses about what will happen in the future. People can plan for the future and understand their financial situation by combining this information.
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Future value facilitates comparisons. The only way an investor can determine which investment will make more money is to calculate future values and compare the results.
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Because of estimates, future value is simple to calculate. Future value does not necessitate complex or real numbers. Anyone can use future value in hypothetical situations because it is heavily reliant on estimates.
Cons of Future Value
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Because it is based on estimates, the findings may be quickly invalidated.
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Calculating the future value of an annuity or an irregular cashflow can be difficult.
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Future value cannot be used to compare and choose between two mutually exclusive projects on its own.
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Most future value models assume constant rate growth, which is frequently unrealistic.
How can PensionBox help?
PensionBox provides the Future Value of your investment keeping inflation in mind. It provides an year on year financial plan which helps you keep a check on your retirement goals. PensionBox simplifies the process of planning, tracking, and investing for a secure retirement.
