Investment growth is mostly time and contributions. The ending balance is what you deposited plus what compounding added. On a long horizon the growth line pulls away from the deposits. On a short horizon it does not, and a high assumed return is the wrong way to make it look like it does.
The gap between the two lines is the point
The balance grows by one-twelfth of the annual rate each month, then the contribution is added. Contributions can step up once a year if you set an increase. The default increase is zero, so the monthly amount stays flat, which understates what happens if you raise savings with your income.
The lower line on the chart is only the cash you put in. The gap is the compound return. Growth eventually exceeds a year of deposits because each year’s return applies to everything already saved. That takes a long time. It is not visible in year three.
A smooth 7 percent is a planning average
Markets do not pay a steady rate. Seven percent is a common long-run assumption for a diversified stock portfolio, and this tool treats the rate you enter as the return before a separate 2.5 percent inflation view. The real-value figure is what the ending balance buys in today’s dollars. A large future number is smaller than it looks.
Fees come straight out of the return. A 1 percent advisory fee or a expensive fund is not a rounding error over 25 years. The investment fee calculator isolates that cost. Taxes in a taxable account reduce the result further. Neither is in this projection.
Use the rate you can defend
Money you need within a few years does not belong in a stock-market assumption. A lower rate is the right stress test when the date is mandatory, such as a tuition bill or a down payment. Raise the contribution before you raise the assumed return. The contribution is the input you control.
This tool projects a balance. The retirement planner compares that kind of projection with an age and a target nest egg. Use this page to see the mechanics. Use the planner when the question is whether you are on track.
How to use the investment growth calculator
The ending balance is your deposits plus growth. Growth is doing the work when it is larger than what you put in, which usually takes a long horizon. The chart’s lower line is only the cash you contributed, so the gap is the compound return.
- Enter the starting balance and the amount you add each month.
- Pick a return you can defend. Seven percent is a common long-run planning rate for a diversified stock portfolio, not a promise.
- Set the number of years, and a yearly increase in the contribution if your savings will rise.
- Separate the ending balance into money you deposited and money the market added.
How the math works
Monthly compounding
The balance grows by one-twelfth of the annual rate each month, then the contribution is added. Contributions can step up once a year by the increase you set. The default increase is zero, so the monthly amount stays flat.
A real, after-inflation view
The tool also shows the ending balance in today’s buying power, using 2.5% inflation. A large future number buys less than it looks like. Use that figure when you are comparing the result with today’s expenses.
Why the rate is a guess
Markets do not pay a smooth 7% every year. The smooth line is a planning average. A lower rate is the right stress test if the goal is mandatory, such as a house down payment on a date.
$25,000 plus $900 a month for 25 years
The defaults earn 7% a year and do not raise the contribution over time.
The balance grows to about $872,000. You contributed about $295,000, including the starting balance. About $577,000 is growth.
Terms worth knowing
- Compound return
- Growth earned on earlier growth, as well as on new contributions.
- Contribution
- New cash you add. It is not a return.
- Real value
- The future balance restated in today’s dollars after inflation.
- Horizon
- How long the money stays invested. Time is what makes compounding visible.
What to do with the number
Raise the contribution before you raise the assumed return. The contribution is the input you control.
Fees come straight out of the return. Run the investment fee calculator if an advisor or fund charges about 1%.
Money you need within a few years does not belong in a 7% assumption.
Revisit the plan yearly. A flat contribution ignores raises.
Questions people ask
What this leaves out
The return is constant and compounds monthly.
Contributions are added every month.
The inflation view uses 2.5% a year.
Fees, taxes, and losing years are not modeled.
These figures are estimates to help you understand the tradeoff. They are not tax, legal, insurance, or investment advice. A fiduciary can look at the same numbers in the context of the rest of your plan.