Compound Interest

Albert Einstein is often reputed to have said: “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”

In the world of investing, there is no force more powerful than Compound Interest. It is the snowball effect that turns a small retirement account into a fortune. Unlike “Simple Interest” (where you only earn on your principal), Compound Interest allows you to earn interest on your interest.

But calculating this in your head is impossible. That’s why we created this professional Compound Interest Calculator to help you visualize your path to wealth.

1. The Compound Interest Calculator

Enter your initial investment, monthly contributions, and expected return below. The chart will instantly show you the difference between the money you put in (Principal) and the free money the market gives you (Interest).

📈 Compound Interest Calculator

2. How to Use This Tool Effectively

To get the most accurate projection for your portfolio, here is a quick guide to the inputs:

Initial Investment

This is the lump sum you have ready to invest today. If you are just starting with $0, that’s okay! The magic really happens with the next input.

Monthly Contribution

This is the key to building wealth. In the US, this is often referred to as Dollar Cost Averaging (DCA). Consistently adding $200, $500, or $1,000 a month to your portfolio is far more important than timing the market.

Estimated Interest Rate (% per year)

  • Conservative (Bonds/HYSA): 4% – 5%.
  • Moderate (Balanced Portfolio): 6% – 8%.
  • Aggressive (S&P 500 / Total Stock Market): Historically, the S&P 500 has returned about 10% annually on average over the long run.

Investment Period (Years)

Time is your best friend. The longer your money sits, the faster it grows. Try changing this number from 10 to 30 years and watch the “Interest Earned” bar on the chart explode!

3. The Cost of Waiting: Why Start Now?

The most expensive mistake young investors make is thinking, “I’ll start investing when I earn more money.”

Let’s look at an example using our calculator:

  • Investor A starts at age 25, invests $300/month for 10 years, then stops adding money but lets it grow until age 60.
  • Investor B waits until age 35, then invests $300/month for 25 years until age 60.

Even though Investor B put in more cash out of pocket, Investor A usually ends up with more money at age 60. Why? Because Investor A’s money had 10 extra years to compound.

Lesson: Don’t wait. Use the calculator above to see how starting today changes your future.

4. Compound Interest vs. Simple Interest

Why is this tool so important? Because the human brain thinks linearly (1, 2, 3, 4), but investing works exponentially (1, 2, 4, 8).

  • Simple Interest: If you invest $10,000 at 10%, you get $1,000 every year. After 20 years, you have your principal + $20,000 profit.
  • Compound Interest: That first $1,000 profit is reinvested. Next year, you earn 10% on $11,000. By year 20, you don’t just have $20,000 profit; you have over $57,000 in profit.

The chart in our tool highlights this gap. The Dark Blue bar (Principal) grows slowly, while the Light Blue bar (Interest) grows rapidly, eventually becoming the largest part of your net worth.

5. What’s Next?

Now that you know how much your money can grow, the next step is to protect it and have a clear exit strategy.

  • Don’t lose it: Use our Position Size Calculator to manage your risk on individual trades.
  • Retire Early: Take your total number from this calculator and plug it into our FIRE Calculator to see if it’s enough to quit your job early.

Investing doesn’t have to be complicated. It just needs to be consistent. Start your simulation above and make a plan today!