Question 1

How does compound interest work?

Accepted Answer

Compound interest means you earn returns on your returns. If you invest $10,000 and earn 7%, you have $10,700 after year one. In year two, you earn 7% on $10,700 (not just the original $10,000), giving you $11,449. Over decades, this snowball effect becomes the majority of your wealth.

Question 2

What return rate should I expect?

Accepted Answer

Historical S&P 500 returns average about 10% per year (nominal) or 7% after inflation. Bond-heavy portfolios might return 4-5%. A balanced 60/40 portfolio historically returns about 8%. The calculator lets you compare different scenarios side by side.

Question 3

How much of my final balance is contributions vs growth?

Accepted Answer

It depends on time and return rate. Over 10 years at 7%, roughly 60-70% of your balance is contributions. Over 30 years, compound growth dominates and contributions might only be 30-40% of the total. The breakdown bar shows this split for your specific inputs.

Question 4

Should I invest a lump sum or dollar-cost average?

Accepted Answer

Historically, lump sum investing beats dollar-cost averaging about two-thirds of the time because markets tend to go up. However, dollar-cost averaging (regular monthly contributions) reduces the risk of investing at a peak and is more practical for most people investing from their paycheck.

Investment Growth Calculator

How the Investment Growth Calculator Works