The math behind this calculator (click to expand)
Each month, the running balance grows at (1 + r)^(1/12) - 1 (the monthly equivalent of the annual return rate), then the month's contribution is added. Year-end balance is the running balance after 12 monthly steps. CAGR on total invested capital is (final_balance / total_contributions)^(1/years) - 1, which is the smoothed annual rate that takes total contributions to the final balance.
Real (inflation-adjusted) balance is nominal_balance / (1 + inflation_rate)^(years). Dividend reinvestment is modeled as a component of the total return rate (no separate yield calculation), which matches how most index-fund investors actually receive returns through automatic DRIP enrollment. To approximate fund expense ratios, subtract the expense ratio from the return rate before running.
Implementation by Michael.
Historical Stock Market Returns and What They Mean for Your Portfolio
The S&P 500 has delivered a compound annual return of approximately 10.7% from 1928 through 2024, including reinvested dividends. Adjusted for inflation, that drops to roughly 7.2%. Those figures are useful as a baseline, but they hide enormous variability. The index gained 57.6% in 1933 and lost 43.3% in 1931. More recently, it dropped 18.1% in 2022 and rebounded 26.3% in 2023.
For this calculator, 8% nominal (approximately 5.5% real) is a reasonable default for a mostly-equity portfolio. If you're modeling a balanced 60/40 stock/bond allocation, 6–7% nominal is more appropriate. International diversification, small-cap tilts, and factor exposures can shift expected returns in either direction, but the broad range of 6–10% nominal captures most diversified portfolio strategies.
A Concrete Example: $15,000 Initial + $750/Month Over 25 Years
Starting with $15,000 and contributing $750 monthly at an 8% annualized return, this calculator projects a final balance of roughly $740,000 after 25 years. Total contributions: $240,000. Total growth: approximately $500,000. That growth figure - more than double what you put in - is compounding doing its work over a multi-decade horizon.
Adjust for 2.5% inflation and the purchasing power of that $740,000 drops to about $400,000 in today's dollars. That's still meaningful - you more than tripled your contributions in real terms. But it's a useful reality check against nominal numbers that can make a portfolio look larger than it will feel.
The same $750/month invested for 10 years instead of 25 produces roughly $145,000 - less than one-fifth of the 25-year result on only 40% of the contributions. Time is the dominant variable in compound growth, and no amount of return optimization compensates for a shorter investment horizon.
Sequence-of-Returns Risk During Accumulation
Sequence risk gets most attention in retirement contexts, but it matters during accumulation too - just in reverse. Bad early returns when your balance is small have less dollar impact than bad returns later when the portfolio is large. A 25% drop on a $50,000 portfolio is a $12,500 loss. The same drop on a $500,000 portfolio wipes out $125,000.
Dollar-cost averaging provides a natural partial hedge during accumulation. When prices drop, your fixed monthly contribution buys more shares. Those extra shares participate in the eventual recovery. This doesn't guarantee better returns - Vanguard research (2012) found lump-sum investing beat dollar-cost averaging roughly two-thirds of the time over 12-month periods - but regular contributions combined with staying invested through downturns has historically produced strong outcomes across most 15+ year windows.
Tax Drag and Account Type Matters
The capital gains tax rate input defaults to 0% because most long-term investors hold their core portfolio in tax-advantaged accounts - 401(k), IRA, Roth IRA, HSA. In those accounts, growth compounds free of annual tax drag. A taxable brokerage account is different: dividends trigger annual taxes, and selling positions creates capital gains events.
The difference over decades is material. $750/month at 8% for 25 years in a tax-free account produces approximately $740,000. Apply a 15% annual tax on the dividend portion (roughly 1.3% of return for S&P 500 funds) and 15% on realized gains at exit, and the after-tax accumulation drops to roughly $650,000–$680,000 depending on turnover. That's a $60,000–$90,000 gap from tax drag alone. Fill tax-advantaged space first - 401(k), IRA, HSA - before directing additional savings to taxable accounts.
What This Calculator Assumes (and Where Reality Diverges)
This model uses a fixed annual return applied monthly, which produces a smooth growth curve. Real markets are jagged - your actual path will include drawdowns of 20–40% that don't appear in a constant-return projection. The 8% average is the destination, not the route.
The calculator also assumes you never stop contributing and never withdraw early. Life rarely cooperates that cleanly. Job changes, unexpected expenses, and shifting priorities create interruptions. A more conservative estimate: assume you'll contribute consistently 80% of the time and use a return rate 1–2 percentage points below your optimistic case. If the numbers still work, you have a resilient plan.
What might change in the next 24 months
Forward-looking expected returns are not the same as historical averages, and 2026 is an unusual moment for that distinction. Vanguard's 2026 capital markets outlook (published December 2025) projects 10-year annualized returns of about 4 to 6% nominal for US large-cap equities, well below the historical 10.7% average, citing elevated valuations measured by the cyclically-adjusted P/E ratio. International developed markets project meaningfully higher (7 to 9%) and US bonds at 4 to 5%, reflecting the post-2022 yield reset.
Inflation has cooled to roughly 2.5 to 3% (BLS CPI) after the 2022-2023 spike. If inflation settles below 2.5%, the real return gap (nominal minus inflation) widens, and projected real balances rise even at the same nominal return assumption. If inflation re-accelerates, the gap narrows.
Tax-advantaged contribution limits continue to creep upward annually. The 401(k) deferral hit $23,500 in 2026, the IRA limit $7,000 ($8,000 with age-50 catch-up). Each step delivers about $50K to $100K of additional retirement balance over a 30-year horizon at 7% nominal return. Worth tracking the November IRS Notice each year.