future value
The value of a current asset at a future date based on an assumed growth rate, showing what today's money will be worth after compound growth.
Example
“The future value of $10,000 invested at 7% for 30 years is approximately $76,123.”
Memory Tip
FUTURE value = what today's money grows INTO over time with compound interest.
Why It Matters
Understanding future value helps you make informed decisions about saving and investing by showing you what your money could grow into over time. This knowledge enables you to set realistic financial goals and understand the power of compound growth, which is essential for long-term wealth building and retirement planning.
Common Misconception
Many people assume that future value calculations work linearly, thinking that money simply grows at the same dollar amount each year rather than earning returns on previous returns. This leads them to underestimate how much their money can actually grow, especially over decades.
In Practice
If you invest $10,000 today at an annual interest rate of 7 percent for 20 years, the future value would be approximately $38,697 rather than just $24,000 that simple math might suggest. This larger amount results from compound growth, where each year you earn returns not only on your original $10,000 but also on all the accumulated interest from previous years.
Etymology
FUTURE (later, ahead) VALUE (worth). What today's money will be worth in the FUTURE.
Common Misspellings
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