Compound Interest Calculator
See how your savings grow over time with monthly contributions and compound interest.
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The Power of Compounding
Compounding grows your balance by earning interest on interest. Adjust inputs to see how contributions and time affect growth.
Complete Investment Guide
Understanding Compound Interest
What is Compound Interest?
Compound interest is when you earn interest not only on your initial investment but also on the accumulated interest from previous periods. This creates exponential growth over time.
The Rule of 72
Divide 72 by your annual interest rate to estimate how long it takes for your money to double. For example, at 7% interest, your money doubles in about 10.3 years.
Time is Your Greatest Ally
The longer you invest, the more powerful compounding becomes. Starting early, even with small amounts, can lead to significant wealth over decades.
Regular Contributions Matter
Consistent monthly contributions combined with compound interest can dramatically increase your final balance compared to one-time investments.
Investment Strategies
Dollar-Cost Averaging
Investing a fixed amount regularly regardless of market conditions. This strategy reduces the impact of market volatility and can lower your average cost per share over time.
Asset Allocation
Diversify your investments across different asset classes (stocks, bonds, real estate) to manage risk and potentially improve returns.
Rebalancing
Periodically adjust your portfolio to maintain your target asset allocation. This helps manage risk and can improve long-term returns.
Tax-Efficient Investing
Use tax-advantaged accounts like 401(k)s, IRAs, and 529 plans to maximize your investment growth and minimize tax liability.
Investment Vehicles
401(k) Plans
Employer-sponsored retirement plans with tax advantages. Many employers offer matching contributions, which is essentially free money.
Individual Retirement Accounts (IRAs)
Personal retirement accounts with tax benefits. Traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free withdrawals.
Index Funds
Low-cost funds that track market indices. They offer broad diversification and typically outperform actively managed funds over time.
Exchange-Traded Funds (ETFs)
Similar to index funds but trade like stocks. They offer low costs, tax efficiency, and broad market exposure.
Risk Management
Diversification
Spread your investments across different assets, sectors, and geographic regions to reduce the impact of any single investment's poor performance.
Risk Tolerance
Understand your ability and willingness to withstand investment losses. Younger investors can typically take more risk for higher potential returns.
Emergency Fund
Maintain 3-6 months of expenses in liquid savings before investing heavily. This prevents having to sell investments during market downturns.
Regular Review
Periodically review and adjust your investment strategy based on changing goals, time horizon, and market conditions.
Investment Timeline Examples
Early Starter (Age 25)
- • Invest $500/month at 7% return
- • At age 65: $1.2 million
- • Total invested: $240,000
- • Interest earned: $960,000
Late Starter (Age 35)
- • Invest $1,000/month at 7% return
- • At age 65: $1.1 million
- • Total invested: $360,000
- • Interest earned: $740,000
Common Investment Mistakes to Avoid
- Not Starting Early: The biggest mistake is waiting to invest. Even small amounts invested early can grow significantly over time.
- Timing the Market: Trying to predict market movements rarely works. Focus on time in the market, not timing the market.
- High Fees: Investment fees can significantly reduce your returns. Choose low-cost index funds and ETFs.
- Emotional Investing: Making investment decisions based on fear or greed often leads to poor outcomes.
- Not Diversifying: Putting all your money in one investment or sector increases risk.
- Ignoring Inflation: Consider inflation when setting return expectations. Real returns matter more than nominal returns.