Investment Growth & Compound Interest Calculator
Projection Summary
Total Future Value
Total Contributions
Total Interest Earned
Understanding Your Investment Growth
Investing is the process of allocating resources, usually money, with the expectation of generating an income or profit. This calculator helps you visualize the power of compound interest—the cycle where your earnings start earning their own earnings. Over long periods, this creates exponential growth that can significantly increase your wealth.
Key Variables in Investing
- Initial Principal: This is the lump sum of money you have available to start your investment today.
- Monthly Contributions: Regular additions to your portfolio. Consistency is often more important than the amount, as it builds a habit of saving and takes advantage of dollar-cost averaging.
- Rate of Return: The percentage increase in the value of your investment over a year. While the stock market historically returns about 7-10% (adjusted for inflation), this can vary based on your asset allocation (stocks, bonds, real estate).
- Time Horizon: The most powerful factor in investing. The longer your money stays invested, the more time it has to compound.
Example Scenarios
Consider two investors, Alex and Sam:
Alex: Starts with $5,000, adds $200 monthly, and earns a 7% return over 30 years. Alex's total value will grow to approximately $274,385.
Sam: Waits 10 years to start, then invests the same $5,000 and $200 monthly for 20 years at the same 7% return. Sam's portfolio will only reach roughly $123,584.
Even though Sam invested for two-thirds of the time Alex did, Alex ended up with more than double the money because of the extra decade of compounding.
The Rule of 72
A quick mental math trick for investors is the "Rule of 72". Divide 72 by your expected annual rate of return to see how many years it will take for your money to double. For example, at a 6% return, your investment doubles every 12 years (72 / 6 = 12).