Question 1

What is compound interest and how does it work?

Accepted Answer

Compound interest is interest calculated on both your initial principal and accumulated interest. Unlike simple interest, your money grows exponentially over time. This calculator assumes monthly compounding, where interest is calculated and added to your balance each month.

Question 2

What annual return rate should I use?

Accepted Answer

Historical stock market returns average 7-10% annually over long periods (adjusted for inflation, closer to 7%). More conservative investments like bonds may return 3-5%. This calculator helps you model different scenarios - try various rates to see the range of possible outcomes.

Question 3

How important are regular monthly contributions?

Accepted Answer

Regular contributions are extremely powerful due to dollar-cost averaging and compound growth. Even small monthly amounts can grow significantly over time. For example, investing $500/month at 7% for 30 years could grow to over $600,000, with only $180,000 being your contributions.

Question 4

What is the Rule of 72?

Accepted Answer

The Rule of 72 is a quick way to estimate how long it takes for money to double. Divide 72 by your annual return rate. At 7% return, money doubles roughly every 10 years (72÷7≈10). At 10%, it doubles every 7 years. This calculator shows you exact figures.

Question 5

Does this calculator account for taxes and inflation?

Accepted Answer

This calculator shows nominal (pre-tax, pre-inflation) returns. For after-tax returns, reduce the return rate by your tax rate. For inflation-adjusted (real) returns, subtract 2-3% from your expected return. For retirement accounts (401k, IRA), taxes may be deferred or avoided.