How to Use the S&P 500 Calculator
The s and p 500 calculator is designed to help investors project the potential growth of their portfolio based on the historical performance of the Standard & Poor's 500 Index. By inputting your starting capital and recurring contributions, you can visualize how compounding interest works over long time horizons in the US stock market.
- Initial Investment
- The amount of money you currently have ready to invest in an S&P 500 index fund or ETF.
- Monthly Contribution
- The amount you plan to add to your investment every month. This is often called Dollar Cost Averaging (DCA).
- Annual Return
- The expected yearly growth rate. Historically, the S&P 500 has averaged approximately 10% annually before inflation.
The Power of Compounding in the S&P 500
When you invest in the S&P 500, you are buying a slice of the 500 largest publicly traded companies in the United States. The s and p 500 calculator uses the future value formula for an ordinary annuity combined with compound interest for the principal. The mathematical expression is:
FV = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) – 1) / (r/n)]
- P: Principal (Initial Investment)
- r: Annual interest rate (decimal)
- n: Number of times interest compounds per year (12 for monthly)
- t: Number of years
- PMT: Monthly contribution amount
Calculation Example
Example: Suppose you start with $5,000 and decide to invest $400 every month into an S&P 500 index fund for 25 years, assuming the historical average return of 10%.
Step-by-step projection:
- Initial Investment (P) = $5,000
- Monthly Contribution (PMT) = $400
- Years (t) = 25
- Annual Return (r) = 10% (0.10)
- The principal of $5,000 grows to approximately $59,590.
- The monthly contributions of $400 grow to approximately $530,722.
- Total Estimated Balance = $590,312
Common Questions about S&P 500 Investing
What is the average return of the S&P 500?
Historically, the S&P 500 has delivered an average annual return of about 10% since its inception in 1957 through 2023. However, when adjusted for inflation, the "real" return is closer to 7%. This s and p 500 calculator allows you to toggle inflation adjustments to see the difference in purchasing power.
Should I invest all at once or monthly?
Lump-sum investing (investing all at once) historically outperforms dollar-cost averaging (investing monthly) about 66% of the time because the market tends to go up over the long term. However, monthly contributions are a more practical reality for most earners and help mitigate the risk of investing a large sum right before a market downturn.
Is the S&P 500 guaranteed?
No investment in the stock market is guaranteed. While the S&P 500 has always recovered from downturns historically, there are years where the index can drop by 20% or more (bear markets). It is widely considered a long-term investment vehicle for horizons of 5 to 10 years or more.