How investment growth is calculated
Each month the balance earns one month's return and your contribution is added. The yearly return is turned into an equivalent monthly rate so that 12 months of growth equals the yearly figure exactly.
Example: $10,000 plus $500 a month for 25 years at 7% grows to $445,795.27. You put in $160,000, so earnings add $285,795.27, almost twice what you contributed. At 2.5% inflation, that's about $240,458 in today's dollars.
What return should I expect?
Over long periods, the U.S. stock market has returned roughly 10% a year before inflation, or about 7% after inflation, but with big swings from year to year. Bonds have returned less. A balanced portfolio is often planned at 5% to 7%. Fees matter too: a 1% yearly fee on the example above would cost tens of thousands of dollars over 25 years.
Returns are never guaranteed. Use a lower rate for a cautious plan. For a single lump sum, try the compound interest calculator; to measure a past investment, use the ROI calculator.
Frequently asked questions
How much will $500 a month be worth in 30 years?
At a 7% yearly return, about $590,000. You'd have contributed $180,000, and growth would add the rest.
What is a good rate of return on investments?
For a long-term, stock-heavy portfolio, 6% to 8% a year is a common planning assumption. More conservative portfolios are often planned at 4% to 5%.
Does contributing at the start of the month make a difference?
A small one: each contribution earns one extra month of growth. Over decades it adds up to roughly half a percent more.
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