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Financial Calculator

Investment Returns Calculator

Calculate how any investment grows over time with compound interest — lump sum or with annual additions.

Investment principles

  • Compound interest is most powerful over long periods — the difference between 10 and 20 years is not 2×, it's often 3–4× the final amount.
  • Diversify across asset classes (stocks, bonds, real estate) to reduce risk without necessarily reducing expected returns.
  • Align your investment time horizon with your goal: short-term goals need stable assets; long-term goals can tolerate equities' volatility.
  • Inflation erodes purchasing power — aim for returns that beat inflation by at least 3–4% annually for real wealth creation.

The power of compound interest

Compound interest means you earn returns not just on your original investment, but also on the returns you've already earned. Over time, this creates an accelerating "snowball" effect. Einstein reportedly called compound interest the eighth wonder of the world — a $10,000 investment at 10% for 30 years grows to over $174,000, even without adding a single extra dollar.

The formula used here is: A = P(1 + r/n)^(nt) + C × [(1+r/n)^(nt) - 1] / (r/n), where P is the principal, r is the annual rate (as a decimal), n is compounding periods per year, t is years, and C is the annual contribution. More frequent compounding yields slightly higher returns for the same stated annual rate.

Frequently asked questions

What is compound interest?
Compound interest is interest calculated on both your initial principal and the interest that has already been added to your account. Unlike simple interest (calculated only on the principal), compound interest grows exponentially over time. The more frequently it compounds — monthly vs annually — the more you earn.
How often should I compound?
More frequent compounding always results in a higher effective annual return. Monthly compounding on a 10% nominal rate gives an effective annual rate of ~10.47%, versus 10% for annual compounding. In practice, the difference is modest — the rate and time horizon matter far more than compounding frequency.
What's a realistic return to expect?
Historically, the US stock market (S&P 500) has returned ~10% nominally per year, or ~7% after inflation. Bonds return 3–5%, savings accounts 1–5% depending on rate environment. A diversified portfolio might target 7–9% annually. These are averages — actual returns vary significantly year to year, and past performance does not guarantee future results.

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