Calculate investment growth with compound interest
An investment calculator helps you project the future value of your investments based on initial deposits, regular contributions, expected returns, and time horizon. It uses compound interest formulas to show how your money can grow over time.
FV = P(1 + r)^n + PMT × ((1 + r)^n - 1) / r
Compound interest is interest calculated on both the initial principal and accumulated interest from previous periods. Unlike simple interest, your earnings generate their own earnings, creating exponential growth over time. This 'interest on interest' effect is why compound interest is called the most powerful force in finance.
Historical S&P 500 returns average about 10% annually before inflation (7% after). Conservative bond portfolios average 4-6%. Savings accounts offer 4-5% currently. Your actual return depends on asset allocation, market conditions, and investment timeline. For planning, many advisors suggest using 6-7% for balanced portfolios.
Inflation reduces purchasing power over time. A 7% return with 3% inflation means only 4% real growth. Over 30 years, $1 million might only have the purchasing power of about $400,000 in today's dollars. Always consider inflation-adjusted (real) returns when planning for future goals.
Statistically, lump sum investing outperforms dollar-cost averaging about 2/3 of the time because markets tend to rise. However, regular contributions (dollar-cost averaging) reduce timing risk and are more practical for most people who earn income gradually. Both strategies beat not investing at all.
The Rule of 72 estimates how long it takes to double your money. Divide 72 by your annual return rate. At 8% return: 72/8 = 9 years to double. At 6%: 72/6 = 12 years. This helps quickly estimate investment growth without complex calculations.
A common guideline is saving 15-20% of income for retirement, but any amount helps. Even $100/month at 7% becomes over $120,000 in 30 years. Start with what's comfortable, then increase contributions as income grows. Employer 401k matches are 'free money' - always capture the full match first.