Investment Growth & Compound Interest Calculator
Projected Future Value
Understanding Investment Calculations
Investment calculations are the bedrock of financial planning. Unlike simple savings, investments utilize the power of compounding—where you earn returns not just on your original principal, but also on the accumulated interest from previous periods. This exponential growth is what allows modest monthly contributions to transform into significant wealth over decades.
The Mechanics of Compound Interest
The core formula used in this calculator for a series of monthly contributions is:
FV = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) – 1) / (r/n)]
- P: The initial principal (your starting balance).
- PMT: The periodic contribution (monthly additions).
- r: The annual nominal interest rate (as a decimal).
- n: The number of times interest compounds per year.
- t: The total number of years the money is invested.
Example Calculation
If you start with 5,000 and contribute 200 per month for 15 years at an annual return of 8% compounded monthly:
- Your total contributions would be 41,000 (5,000 + 36,000).
- Your final balance would be approximately 76,285.
- The "magic" of compounding provided over 35,000 in growth.
Key Factors Influencing Your ROI
1. Time Horizon: The longer your money stays invested, the more time compounding has to work. In the later years of an investment, the growth typically surpasses the actual contributions.
2. Rate of Return: Small changes in percentage can lead to massive differences. An 8% return versus a 6% return over 30 years can result in hundreds of thousands of units in difference.
3. Consistency: Regular monthly contributions lower the impact of market volatility (dollar-cost averaging) and steadily build the principal base that earns interest.