Compare risk-adjusted returns across different investment types using the Sharpe ratio and other key metrics. This calculator evaluates savings accounts, government bonds, corporate bonds, dividend stocks, index funds, growth stocks, and cryptocurrency side by side. Enter your investment amount, time horizon, and risk-free rate to make informed allocation decisions.
| Asset Class | Annual Return | Risk Level | $50,000 grows to | Sharpe Ratio |
|---|---|---|---|---|
Savings Account | 2% | Low | $60,950 | 0.00 |
Government Bonds | 4% | Low | $74,012 | 4.00 |
Corporate Bonds | 6% | Low | $89,542 | 2.67 |
Dividend Stocks | 8% | Medium | $107,946 | 2.00 |
Index Funds | 10% | Medium | $129,687 | 2.00 |
Growth Stocks | 14% | Medium | $185,361 | 1.50 |
Crypto | 20% | High | $309,587 | 0.72 |
Every investment involves a trade-off between risk and expected return. Higher potential returns typically come with higher risk of loss. The key to successful investing is not avoiding risk entirely but understanding, measuring, and being appropriately compensated for the risk you take.
The Sharpe ratio measures risk-adjusted return: (Portfolio Return - Risk-Free Rate) / Portfolio Standard Deviation. A Sharpe ratio above 1.0 is considered good, above 2.0 is very good, and above 3.0 is excellent. It helps you compare investments that have different risk levels on an equal footing.
Market risk affects all investments in a market. Interest rate risk impacts bonds when rates change. Inflation risk erodes returns that do not keep pace with rising prices. Credit risk is the chance a borrower defaults. Liquidity risk means you cannot sell quickly at fair value. Currency risk affects international investments.
Savings accounts: 0.5-2% return, near-zero risk. Government bonds: 2-4%, low risk. Corporate bonds: 4-6%, moderate risk. Dividend stocks: 6-9%, moderate-high risk. Index funds: 8-10%, high risk. Growth stocks: 10-15%, very high risk. Cryptocurrency: highly variable, extreme risk.
Match your risk tolerance to your time horizon. Test your true risk tolerance by asking: if my portfolio dropped 30% tomorrow, would I panic sell or buy more? If you would panic sell, you are taking too much risk. The best portfolio is one you can hold through the inevitable downturns.