Sometimes it is convenient to project what you can expect from your investments over time. This helps you to plan how much you want to save, and how much you want/need in the future. I created this simple calculator to demonstrate the power of compounding growth. Feel free to drag the rate of return slider to see how drastic it can affect your portfolio value.
I use 7% as the average rate of return because the S&P 500 returns an average of 10% a year, but this does not include inflation (the increase of prices of goods). We can use 7% to estimate what our future funds would look like in today’s money.
Keep in mind that although 7% is a decent estimation, past performance is not indicative of future performance. Not only this, but 7% is just an average. You could experience 3 years of 20% annual growth, just to be hit with a 40% downturn. If you would have invested $50,000 right after the 2008 crash, you would have much more money today than if you invested $50,000 right before the 2008 crash. Luckily the longer your money has to grow, the less this volatility matters.
