Investment Return Calculator — Methodology

How This Calculator Works

This calculator projects the future value of an investment using compound interest with regular contributions. It shows the breakdown between your contributions and investment growth, plus an inflation-adjusted real value.

Inputs and Assumptions

• Initial investment: Starting lump sum amount.
• Monthly contribution: Regular monthly additions, assumed constant.
• Annual return rate: Expected nominal annual return (before inflation).
• Investment horizon: Number of years, up to 50.
• Inflation rate: Used to calculate purchasing-power-adjusted balance.
• Compound frequency: Annually (default) or monthly. Annually reads your rate as the return for a whole year, as a stock-market average is measured. Monthly splits the rate by 12 and adds it every month, as a savings account quoting a yearly rate does.
• Timing of deposits: In both modes each monthly contribution is added at the end of its month, after that month's growth.

Formula

Annual setting (default): the rate is an effective annual rate, so money grows by exactly (1 + rate) in a year. Each month grows by the effective monthly rate, which compounds to the annual rate over 12 months.

// Annual setting (default)
i = (1 + annualReturn)^(1/12) - 1
n = years × 12

// Future value of initial investment (equals initial × (1 + annualReturn)^years)
FV_initial = initialInvestment × (1 + i)^n

// Future value of monthly contributions, paid at the end of each month
FV_contributions = monthlyContribution × [((1 + i)^n - 1) / i]

// Example: $1,000 a month at 5% for 1 year
i = 1.05^(1/12) - 1 = 0.004074
FV = 1,000 × (0.05 / 0.004074) = $12,273

Monthly setting: the rate is split by 12 and applied every month. A 7% rate then grows money by 7.23% in a year, which suits a savings account quoting a yearly rate but overstates a stock-market average.

// Monthly setting
r = annualReturn / 12
n = years × 12
FV_initial = initialInvestment × (1 + r)^n
FV_contributions = monthlyContribution × [((1 + r)^n - 1) / r]

Both settings then use:

finalBalance = FV_initial + FV_contributions
totalContributions = initialInvestment + (monthlyContribution × n)
totalGrowth = finalBalance - totalContributions

// Inflation-adjusted (real) balance
realBalance = finalBalance / (1 + inflationRate)^years

// Effective real return (annual setting: rate; monthly setting: (1 + rate/12)^12 - 1)
realReturn = (1 + effectiveAnnualReturn) / (1 + inflationRate) - 1

// Rule of 72 (doubling time)
doublingYears = 72 / (annualReturn × 100)

// Growth multiple
growthMultiple = finalBalance / totalContributions

Data Sources

• Historical S&P 500 average returns (Shiller) — ~10% nominal annual return, commonly cited benchmark.
• "Stocks for the Long Run" (Siegel) — Long-term equity return research.

Limitations

• Uses a constant return rate — does not model volatility or market cycles.
• Does not account for taxes on investment gains (capital gains, dividends).
• Does not model investment fees (see Total Fee Calculator for fee impact).
• Past performance does not guarantee future results.
• Contributions assumed constant — no modeling of increases or interruptions.

Last Updated

• October 2026: the annual setting now credits monthly deposits month by month at the effective monthly rate. Before, deposits sat uncredited until the end of the year, so $1,000 a month at 5% for one year showed $12,000 and no growth. The lump-sum figure is unchanged ($100,000 at 10% for 40 years is $4,525,926). The page now documents both settings, and the monthly setting's real-return figure uses the yearly growth it really produces.
• October 2026: the default compounding is annual, not monthly.
• April 2026: default return rate guidance updated.