How does the calculator work?
Each month the balance earns the monthly rate, then the contribution is added. The next month's growth applies to that larger balance: interest on interest.
An annual rate is turned into the equivalent monthly rate: (1 + annual rate)^(1/12) − 1. So 7% a year becomes about 0.565% a month, and the balance grows exactly 7% over a year.
Results are nominal: no taxes, fees or inflation, and the same rate from start to finish.
What matters more: time or the amount?
Investing $500 a month at 7% a year gets you to $85,525.87 in 10 years: $60,000.00 contributed and $25,525.87 of interest.
Keep the same $500 for 20 years and you reach $253,768.19; for 30 years, $584,726.30, of which $404,726.30 is interest. Early on, your contributions do the heavy lifting; over decades, compounding takes over.
10 years
- Contributed
- $60,000.00
- Interest
- $25,525.87
- Balance
- $85,525.87
30 years
- Contributed
- $180,000.00
- Interest
- $404,726.30
- Balance
- $584,726.30
Where should each contribution go?
This calculator shows how your contributions grow; it doesn't say which funds to buy. To keep your portfolio on the mix you chose (stocks, international, bonds), each contribution should go to what's furthest below target. That's what Allocta works out: tell it how much you're investing this month and it shows how much goes into each holding. Because it only uses new money, there's nothing to sell, so no capital gains tax on a sale in a taxable account.
FAQ
What is compound interest?
Interest earned on a balance that already includes past interest. That's why growth speeds up over time, while simple interest always pays on the original amount.
Is the rate annual or monthly?
Your choice. An annual rate is converted to the equivalent monthly rate: 7% a year is about 0.565% a month.
Are contributions made at the start or the end of the month?
At the end of each month. The first contribution starts earning the following month.
Does it account for taxes and inflation?
No. Results are before taxes and in nominal dollars. For a rough real return, enter a rate with expected inflation already subtracted.
Calculate your next contribution in Allocta
Your first 7 days are on the Plus plan, with everything unlocked.