What to enter
The calculator has two modes. Choose Project the future value of an investment to look ahead, or Measure the return on a past investment to look back.
- Starting investment and monthly contribution
- What you have invested now and what you add each month. Both can be zero, but at least one should be positive for the result to be meaningful.
- Expected annual return (before fees)
- A steady average return. Long-run averages for diversified portfolios are often quoted in the mid to high single digits, but nobody knows the future, so it is wise to test lower rates as well as higher ones.
- Annual fees and fund expenses
- The percentage of assets you pay each year in fund expense ratios and any advisory fee. It is subtracted from the return.
- Years invested
- The length of the investment period.
- Assumed inflation
- A steady yearly rate used to show the result in today’s purchasing power.
- Amount invested, value at the end, years held
- In the measure mode, the money you put in, what it is worth now (including any income you kept invested), and how long you held it.
How to read your results
In projection mode, the headline is the estimated future value, followed by a version in today’s dollars. The second number is often more useful, because a large balance decades from now buys less than the same figure would today. The table also shows the net annual return used (return minus fees), total invested, the growth, and the estimated cost of fees, which is the difference between the balance without fees and the balance with them.
In measure mode, the headline is the annualized return, also called the compound annual growth rate (CAGR): the constant yearly rate that would take the starting amount to the ending amount over the time held. The table also shows the gain or loss, the total return as a percentage, the growth multiple and the time it would take to double at that pace.
The formulas
For the projection, the net return is the expected return minus the annual fees. It is converted into a monthly rate, and the balance is stepped forward month by month with the contribution added at the end of each month:
Monthly rate = (1 + net return)1 ÷ 12 − 1
Balancenext = Balance × (1 + monthly rate) + contributionThe value in today’s dollars is the future value divided by (1 + inflation)years.
For the measure mode:
CAGR = (ending value ÷ amount invested)1 ÷ years − 1The growth multiple is ending value ÷ amount invested.
Worked example
$10,000 start, $250 a month, 7% return, 0.25% fees, 25 years
The net return is 6.75%. The estimated future value is $239,861 on $85,000 invested, which means $154,861 of growth. At 2.5% inflation, that is worth about $129,379 in today’s dollars. Over the period, fees cost roughly $10,173.
The effect of fees. With fees at 1% instead of 0.25%, the future value falls to $211,991, and with no fees it would be $250,035. Fees look small as a percentage, but because they are charged every year on a growing balance, they compound against you. The gap between 0.25% and 1% is $27,870.
Measuring a past return. Investing $10,000 that grows to $15,500 over 5 years is a 55.0% total return and an annualized return of 9.16%, so the money would double in about 7.9 years at that pace. Losing money works the same way: $10,000 falling to $8,000 over 2 years is a -20.0% total return and -10.56% a year.
Why fees and inflation deserve attention
Investment costs come in several forms: fund expense ratios, advisory fees, trading costs and account fees. The SEC’s investor education site explains how even small percentages have a large effect over decades. Because a fee is charged as a percentage of assets every year, it takes a share of the growth you would otherwise have earned as well as of the balance. Compare the expense ratios of similar funds, and understand what any advisor charges and what you receive for it.
Inflation matters for the opposite reason: it does not show up on your statement. A balance that grows 6.75% a year while prices rise 2.5% a year has real growth of about 4.1%, which is why the calculator shows the figure in today’s dollars. Planning goals in real terms, such as “$1 million in today’s purchasing power,” avoids overstating how far the money will go. To see the effect of inflation over particular years, use the inflation calculator.
Assumptions and limits
A steady rate is a simplification. Real returns are uneven, and the order in which good and bad years arrive can matter, especially when you contribute or withdraw money along the way. The projection ignores taxes on gains, dividends or withdrawals, and it assumes you contribute the same amount every month and never withdraw. The measure mode treats the amount invested as a single lump sum. If you added or withdrew money along the way, the true return would be different, and a money-weighted return (an internal rate of return) would be more appropriate. For a plain compounding illustration without fees and inflation, use the compound interest calculator. For retirement planning with income and withdrawals, the retirement calculator goes further. Investing involves risk, including the possible loss of principal.
Frequently asked questions
What is CAGR?
Compound annual growth rate is the steady yearly rate that would grow the starting value into the ending value over the period. It smooths out year-to-year swings into one comparable number.
What return should I assume?
There is no right number. Returns depend on the assets you hold and the period. Try a range of rates, including a conservative one, and see how much the outcome changes.
Do the fees include trading costs and taxes?
Only what you enter in the fee field. Add explicit expense ratios and advisory fees. Taxes on gains and dividends are not modeled.
Why is the value in today’s dollars lower?
Because prices rise over time. The future amount is divided by the cumulative inflation over the period to show what it would buy in today’s terms.
Can I use the measure mode if I made several deposits?
Not accurately. It assumes a single lump sum. With several deposits or withdrawals, a money-weighted return is the right measure.