Estimate your investment growth, returns, and future value.
Total Contributions & Growth
The relationship between risk and return is one of the fundamental principles of investing: higher potential returns generally come with higher risk.
| Investment Type | Risk Level | Historical Annual Returns |
|---|---|---|
| Cash/Money Market | Very Low | 1-3% |
| Government Bonds | Low | 3-5% |
| Corporate Bonds | Low-Medium | 4-7% |
| Large-Cap Stocks | Medium-High | 7-10% |
| Small-Cap Stocks | High | 9-12% |
| Emerging Markets | Very High | 10-15% |
When using the investment calculator, consider that higher expected returns should be viewed with caution, as they typically involve greater risk and volatility.
Diversification is the strategy of spreading investments across various asset classes to reduce overall portfolio risk.
| Risk Profile | Stocks | Bonds | Cash | Suitable For |
|---|---|---|---|---|
| Conservative | 20-30% | 50-60% | 10-30% | Near-retirement, low risk tolerance |
| Moderate | 40-60% | 30-50% | 0-10% | Mid-career, medium risk tolerance |
| Aggressive | 70-90% | 10-30% | 0-5% | Young investors, high risk tolerance |
When using the investment calculator, you might want to calculate separate projections for different portions of your diversified portfolio, as they will likely have different expected returns.
Investment fees can significantly impact your returns over time due to the compound effect.
Example: On a $100,000 investment with a 7% annual return over 30 years:
When using the investment calculator, consider subtracting your estimated annual fees from the expected return rate to get a more accurate projection.
Compound interest is often called the "eighth wonder of the world" because it allows your money to grow exponentially over time as you earn interest on both your principal and accumulated interest.
A quick way to estimate how long it will take to double your money is to divide 72 by your annual rate of return.
| Annual Return | Years to Double |
|---|---|
| 3% | 24 years |
| 6% | 12 years |
| 9% | 8 years |
| 12% | 6 years |
Compounding Frequency Impact:
$10,000 invested at 8% annual interest for 20 years:
The most powerful factor in compounding is time. The earlier you start investing, the more dramatic the effects of compounding will be on your wealth building.
Emma started investing a small portion of her first job's salary. By prioritizing consistent contributions from an early age, she leveraged the power of time and compound growth. Despite only contributing $149,000 over her lifetime, her patience and consistency resulted in over $1 million for retirement.
Marcus realized at 45 that he hadn't saved enough for retirement. He made significant lifestyle changes to boost his monthly contributions and allocated a large bonus to establish his initial investment. While he contributed nearly twice as much as Emma in our first example, his final balance was lower due to the shorter time horizon.
The Patel family started a 529 college savings plan immediately after their daughter's birth. They chose a moderate risk profile that automatically adjusted to become more conservative as their daughter approached college age. This strategic approach provided enough funding to cover a significant portion of four-year college expenses.
The appropriate rate of return to use depends on your investment strategy, time horizon, and risk tolerance.
Important Caution: Historical returns are not guarantees of future performance. Many financial experts suggest using more conservative estimates for forward-looking projections.
| Portfolio Composition | Conservative Estimate | Moderate Estimate | Aggressive Estimate |
|---|---|---|---|
| Conservative (20-30% stocks) | 2-3% | 3-4% | 4-5% |
| Moderate (50-60% stocks) | 3-4% | 4-5% | 5-6% |
| Aggressive (80-90% stocks) | 4-5% | 5-6% | 6-7% |
When using the investment calculator, it's often wise to run multiple scenarios with different rates of return to understand the range of possible outcomes.
Inflation reduces the purchasing power of your money over time, which means the real value of your investment returns is lower than the nominal value.
| Years | 2% Annual Inflation | 3% Annual Inflation | 4% Annual Inflation |
|---|---|---|---|
| 10 | $82,035 (-18%) | $74,409 (-26%) | $67,556 (-32%) |
| 20 | $67,297 (-33%) | $55,368 (-45%) | $45,639 (-54%) |
| 30 | $55,207 (-45%) | $41,199 (-59%) | $30,832 (-69%) |
Calculator Tip: When using the investment calculator, consider using a more conservative rate of return (by 2-3 percentage points) to account for the effects of inflation, or interpret your results as being in "today's dollars" if you're using real (inflation-adjusted) returns.
Lump sum investing and dollar-cost averaging represent two different approaches to entering the market:
| Feature | Lump Sum Investing | Dollar-Cost Averaging |
|---|---|---|
| Definition | Investing all available money at once | Investing fixed amounts at regular intervals |
| Historical Performance | Tends to outperform in rising markets (~66% of the time) | Often underperforms lump sum but with less volatility |
| Psychological Benefit | Less emotional stress if markets rise immediately | Reduces regret risk and anxiety in volatile markets |
| Best Used When | You have a long time horizon and can tolerate volatility | You're concerned about market timing or emotional investing |
Example Comparison:
Scenario: $120,000 to invest, either all at once or $10,000/month for a year
If market rises steadily: Lump sum outperforms by getting full exposure earlier
If market drops then recovers: Dollar-cost averaging outperforms by buying more shares at lower prices
In the investment calculator, you can model both approaches by comparing:
Research suggests that lump sum investing has historically outperformed dollar-cost averaging about two-thirds of the time, but many investors still prefer dollar-cost averaging for the psychological benefits and risk management.
Taxes can significantly impact your investment returns, but the effect varies based on the type of account and investment.
| Account Type | Tax on Contributions | Tax on Growth | Tax on Withdrawals |
|---|---|---|---|
| Taxable Account | After-tax money | Taxed annually (dividends, interest, capital gains) | Only on capital gains |
| Traditional 401(k)/IRA | Tax-deductible | Tax-deferred | Taxed as ordinary income |
| Roth 401(k)/IRA | After-tax money | Tax-free | Tax-free (qualified withdrawals) |
| HSA (for medical) | Tax-deductible | Tax-free | Tax-free (for qualified expenses) |
Tax Efficiency Strategies:
When using the investment calculator for taxable investments, consider reducing your expected return rate by 1-2% to account for the tax drag, or run separate calculations for different account types.
The ideal monthly investment amount depends on your financial goals, time horizon, and current financial situation.
| Goal Amount | 5 Years (7% return) | 15 Years (7% return) | 30 Years (7% return) |
|---|---|---|---|
| $100,000 | $1,380/month | $320/month | $100/month |
| $500,000 | $6,900/month | $1,600/month | $500/month |
| $1,000,000 | $13,800/month | $3,200/month | $1,000/month |
Step-by-Step Determination Process:
Remember that investing consistently, even small amounts, is more important than waiting until you can invest larger sums. The power of compounding rewards those who start early, even with modest contributions.