Investment Calculator

Why long-term compounding wins

The simple version: time in the market beats timing the market. Compounding doesn't do much in year 1 or 2 — but it accelerates over decades. A 30-year horizon turns modest contributions into life-changing balances; the same amount of money invested for 10 years is a fraction.

Realistic return assumptions

• S&P 500 (US large-cap stocks): ~10% nominal, ~7% real (after inflation) over 100 years.
• Total US stock market: ~9–10% nominal historically.
• International developed markets: ~7–8% nominal historically (more volatile in USD terms).
• US bond aggregate: ~4–5% nominal long-term; lower in recent decades.
• 60/40 stocks/bonds portfolio: ~7–8% nominal, the “classic” balanced mix.
• High-yield savings (2026): ~4–5% — but rate-sensitive, may drop quickly when Fed cuts.
• CDs (1-year): ~4–5% currently; higher for longer terms.

For long-term retirement planning, 7% real(after inflation) is a commonly used conservative assumption for diversified equity-heavy portfolios. Real returns matter more than nominal because you'll spend in tomorrow's inflated dollars.

Inflation: the hidden tax

Inflation reduces the buying power of every dollar over time. Long-term US average: ~3%. The Fed currently targets 2%. At 3% inflation, prices double every ~24 years — $1M in 30 years has the same purchasing power as ~$400K today.

The calculator subtracts your inflation rate from your nominal return to give you an inflation-adjusted future value. This is the more honest way to plan: it reflects what your money will actually buy when you spend it.

The Rule of 72

Quick mental math: 72 ÷ annual return = years to double.

• 4% return: doubles every 18 years
• 6% return: doubles every 12 years
• 8% return: doubles every 9 years
• 10% return: doubles every 7.2 years
• 12% return: doubles every 6 years

Useful for sanity-checking projections. If a financial planner promises you'll double your money in 5 years at “low risk,” that's implying a ~14% return — well above market averages. Be skeptical.

Where to invest

• Tax-advantaged accounts first: 401(k) up to employer match, then IRA, then back to 401(k) max.
• Low-cost index funds: S&P 500 (VOO, VFIAX), total US (VTI, VTSAX), total international (VXUS, VTIAX). 0.04–0.10% expense ratios.
• Target-date funds: one-stop diversified portfolio that auto-adjusts to your retirement year. Slightly higher expense ratios but trivial decision-making.
• Bonds: shift toward bonds as you approach retirement. A common rule: % bonds ≈ your age, but newer thinking favors heavier equity allocations even past 60.

Avoid: high-fee actively-managed mutual funds (most underperform index funds after fees), individual stock picking with money you can't afford to lose, leveraged ETFs for long-term holding, and anything advertised on Twitter.

Common mistakes

• Selling in panic — average investor underperforms the index because they sell after crashes and buy after recoveries.
• Trying to time the market — even professionals usually fail. Set a contribution schedule and stick to it.
• Ignoring fees — 1% fee compounds to ~25% less wealth over 40 years. Always check expense ratios.
• Lifestyle creep — failing to increase contributions as income grows.
• Not maxing employer match — leaving free money on the table.
• Investing emergency-fund money — keep 3–6 months of expenses in cash before maxing investment accounts.

Stress-test the projection

Run the calculator at different return rates: 5%, 7%, 9%. The spread shows how sensitive your projection is to assumptions. If your retirement plan only works at 10%+ returns, it's fragile. Plans that work even at 5% real returns are robust.

Pair this with our Compound Interest Calculator for the underlying math, and the Paycheck Calculator to see the impact of pre-tax 401(k) contributions on your take-home pay.