Investment Calculator

Understanding Compound Interest

Compound interest is the process where your investment earnings generate their own earnings over time. Albert Einstein allegedly called it "the eighth wonder of the world," and for good reason - it's the key to building long-term wealth.

This calculator shows you how your initial investment combined with regular contributions can grow over time, demonstrating the powerful effect of compound interest on your wealth-building journey.

Key Investment Terms

• Initial Investment: The starting amount you invest (also called principal).
• Regular Contribution: The amount you add to your investment periodically (monthly or annually).
• Expected Return Rate: The annual percentage return you anticipate (historical stock market average is ~7-10%).
• Compound Frequency: How often your earnings are reinvested (monthly, quarterly, or annually).
• Investment Period: The total time you plan to keep your money invested.
• Inflation Rate: The rate at which purchasing power decreases over time (typically 2-3% annually).

Historical Investment Returns

Understanding historical returns can help set realistic expectations:

• S&P 500 Index: ~10% average annual return (since 1926)
• Diversified Stock Portfolio: 7-9% average annual return
• Bonds: 4-6% average annual return
• Balanced Portfolio (60/40): 6-8% average annual return
• High-Yield Savings: 3-5% average annual return

Note: Past performance does not guarantee future results. Actual returns will vary.

The Power of Time: Start Early Examples

Starting early makes a dramatic difference due to compound interest. Compare these scenarios at 7% annual return:

Starting 10 years earlier doubles the final value with the same total investment!

Investment Strategies for Different Goals

• Retirement (30+ years): Aggressive growth portfolio (80-90% stocks), 8-10% expected return
• Long-term Wealth (10-20 years): Balanced portfolio (60-70% stocks), 7-8% expected return
• Medium-term Goals (5-10 years): Conservative portfolio (40-50% stocks), 5-6% expected return
• Short-term Savings (1-5 years): High-yield savings or bonds, 3-4% expected return

Maximizing Your Investment Growth

• Start Now: Time is your greatest asset in investing. Even small amounts compound significantly.
• Automate Contributions: Set up automatic transfers to ensure consistent investing.
• Increase Gradually: Raise contributions by 1-2% annually or when you get a raise.
• Diversify: Spread investments across different asset classes to reduce risk.
• Minimize Fees: Choose low-cost index funds or ETFs (expense ratios under 0.2%).
• Tax Advantages: Use tax-advantaged accounts like 401(k)s and IRAs when possible.
• Stay Invested: Avoid timing the market; stay the course through volatility.

Common Investment Mistakes

• Waiting to invest until you have "enough" money - start with what you have
• Trying to time the market instead of focusing on time in the market
• Panicking and selling during market downturns
• Paying high fees for actively managed funds that underperform index funds
• Not rebalancing your portfolio periodically
• Ignoring inflation's impact on purchasing power