Hypothetical illustration. The calculator assumes a constant annual return compounded monthly. Actual market returns vary year-to-year and may be negative.
Does not account for taxes, fees, inflation, or sequence-of-returns risk.
Compound growth is when the returns your money earns start earning returns of their own. Each year’s gain is added to your balance, so the next year’s growth is calculated on a bigger number, and the effect snowballs the longer you leave it alone.
Put in $10,000 at an 8% annual return. After year one you have about $10,830. Year two’s 8% then applies to $10,830, not the original $10,000. Leave it for 30 years and it grows to roughly $109,400 without adding another cent, and adding $200/month along the way lifts it to about $407,000.
Underestimating how much an early start matters. Because the snowball builds on itself, beginning ten years sooner can matter more than contributing more each month later on.