| Year | Contributed | Growth | Balance |
|---|
Contributions are added at the end of each month and returns compound monthly. Results are nominal, before taxes, fees and inflation. This is an illustration, not a forecast.
How the math works
Each month the balance grows by the annual rate divided by 12, then the monthly contribution is added. After many years most of the balance can come from growth rather than from what you put in, which is why starting early matters.
Examples
Warren Buffett's late wealth. In The Psychology of Money (2020), Morgan Housel pointed out that of Buffett's net worth at the time, about $84.5 billion, roughly $81.5 billion came after his 65th birthday. Buffett had been investing since he was a boy. The giant numbers came late because compounding needs time, and he stayed invested for decades.
Starting at 25 or at 35. Put the calculator at $0 to start, $300 a month and 7% a year. Over 40 years (age 25 to 65) the balance is about $787,000, of which $144,000 is money you put in. Over 30 years (age 35 to 65) it is about $366,000, from $108,000 put in. Ten extra years of saving, $36,000 more, more than doubles the result. This is an illustration with a steady return; real markets go up and down.
Explain it like I'm 13
Imagine a snowball rolling down a hill. At first it is small and picks up only a little snow. As it gets bigger, each turn picks up more snow, because there is more ball touching the ground.
Money that earns interest works the same way. You earn a bit on your savings. Next year you earn on your savings and on last year's bit. The longer the hill, the bigger the snowball, which is why starting early matters more than starting big.
Questions
What is compound interest?
Compound interest is growth on growth. Each period, returns are earned on your original money and on the returns already added, so the balance grows faster over time.
What return should I use?
There is no right answer. The U.S. stock market has had long periods of strong and weak returns, and future returns are unknown. Try several rates to see a range of outcomes.
Does this include inflation or taxes?
No. Results are nominal and before taxes and fees. You can lower the rate to approximate their effect.