Year-by-Year Growth
| Year | Total Contributions | Investment Growth | Portfolio Value |
|---|
How to Use This Calculator
Enter your starting amount - existing retirement accounts, brokerage balance, or cash you're ready to invest. Be realistic about what you can commit without needing the money for at least 5 years.
For contributions, pick an amount you can actually stick with long-term. Better to commit $200/month consistently than $500/month for three months before quitting.
Expected returns depend on what you buy. Stocks historically return 10% annually. Bonds return about 5%. A balanced 60/40 portfolio typically hits 7-8% long-term. Don't use 15-20% projections unless you're picking individual stocks (and even then, good luck). Warren Buffett averaged 20% and he's Warren Buffett. Most of us aren't. Use 10% for all-stocks, 8% for moderate mixes, or 6% for conservative portfolios.
Account type matters more than you think. A Roth IRA growing to $1 million is worth $1 million. A Traditional IRA growing to $1 million might only net you $700,000 after taxes in retirement.
These are projections. Actual returns bounce around wildly year to year - up 30% one year, down 20% the next. The averages only show up over decades.
Use conservative estimates. If you plan for 7% returns and earn 10%, you'll have extra money. Plan for 12% and earn 8%? You're short on retirement savings.
Investment Returns
Compound Growth
Unlike simple interest, investment returns compound - you earn returns on your returns. A $10,000 investment at 10% annual return becomes $67,275 in 20 years without adding a penny. This exponential growth is why starting early matters so much - the first decade of investing does more for your wealth than the last decade.
Someone who invests $500/month from age 25-35 then stops will have more at 65 than someone who invests $500/month from age 35-65, even though the second person contributed twice as much money.
Historical Market Returns
Over nearly a century (since 1926), the S&P 500 has averaged 10% annually, but individual years swing wildly from this average.
Some years return 30%, others lose 40%. Staying invested through downturns is the only way to capture that 10% average. Investors who panic-sell during crashes miss the recovery and earn far less than the historical average. Many investors earn far less than market averages because they buy high during euphoria and sell low during panic.
Asset Allocation Impact
Your expected return depends on your investment mix. 100% stocks: ~10% return with high volatility. 60% stocks/40% bonds: ~7-8% return with moderate volatility. 100% bonds: ~5% return with low volatility.
Younger investors can handle more stocks (longer time to recover from crashes). Older investors need more bonds (can't wait out a 50% stock drop). One traditional approach: match your bond percentage to your age - 30 years old means 30% bonds, 70% stocks.
Dollar-Cost Averaging
Investing monthly (like our calculator assumes) is called dollar-cost averaging. You buy more shares when prices are low, fewer when prices are high. This removes the pressure to "time the market" perfectly - you're investing consistently regardless of market conditions. Most 401(k) contributions happen automatically through payroll, which means you're already dollar-cost averaging without thinking about it.
Inflation Consideration
A 10% nominal return becomes 7% real return after 3% inflation. Your money doubles in purchasing power roughly every 10 years at 7% real returns.
Always think in real (inflation-adjusted) terms when planning long-term - a million dollars in 30 years won't buy what a million buys today. With 3% annual inflation over three decades, that future million has the same buying power as just $412,000 today.
What Works
- Start now
- Max employer match first. If they match 6%, contribute 6%.
- Index funds typically beat stock picking over long periods
- Expense ratios under 0.20% - 1% fee costs hundreds of thousands over decades. Choose Vanguard, Fidelity, or Schwab funds with 0.03-0.10% fees.
- Market timing typically underperforms buy-and-hold
- Rebalance annually. Sell winners, buy losers.
- Check portfolio quarterly max, not daily
- Save half your next raise
- Money needed within 5 years stays in savings
- 20-40% international stocks
Investment Account Types
Taxable Brokerage Account
No contribution limits or withdrawal restrictions. Investment growth taxed as capital gains (15-20% for most people on long-term holdings). Dividends and interest taxed annually. These accounts work best for money you might need before retirement, after maxing tax-advantaged accounts, or when you want complete flexibility - you can access your money anytime without penalties.
Traditional 401(k) / IRA
Contributions are tax-deductible now. Investments grow tax-free. Withdrawals in retirement taxed as ordinary income (potentially 22-37% depending on income). Required minimum distributions start at age 73. Early withdrawal before 59½ triggers 10% penalty plus taxes. Makes sense when you're a high earner now who expects lower tax rates in retirement. For 401(k)s, you can contribute up to $23,500 in 2025 ($31,000 if you're 50+), and employer match doesn't count toward this limit - max it out if possible. Traditional IRAs have a $7,000 limit ($8,000 if 50+), with deductibility phased out at higher incomes. Open an IRA after maxing your 401(k) match to get more investment options.
Roth 401(k) / IRA
Contributions made with after-tax money (no current tax deduction). Investments grow completely tax-free. Withdrawals in retirement are 100% tax-free - you pay ZERO taxes on growth. No required minimum distributions for Roth IRAs. Can withdraw contributions (not earnings) anytime penalty-free. Contribution limits match Traditional accounts ($23,500 for 401(k), $7,000 for IRA in 2025), but Roth IRAs have income limits - direct contributions phase out between $146,000-$161,000 for singles, $230,000-$240,000 for married couples. High earners can use the backdoor Roth strategy. Roth is mathematically better if you expect higher tax rates in retirement than today - typically young investors, lower earners expecting raises, or those wanting tax-free income later.
Risk
Risk Tolerance by Age
- 20s-30s: 90-100% stocks
- Still decades to recover from crashes in your 40s - keep 80-90% stocks
- Approaching retirement? 70-80% stocks even in your 50s
- Shift toward preservation in 60s with 50-70% stocks
- Even retired, maintain 40-60% stocks - retirement lasts 30 years
Bear Markets Happen
The stock market crashes 30-50% roughly every 10 years.
The 2008 crash dropped 55%. The 2000 dot-com bubble lost 49%. COVID in 2020 took down 34%. Every single time, markets recovered and hit new highs. Investors who stayed invested made money. Those who panic-sold locked in losses.
Bear markets offer buying opportunities for long-term investors. If you love a stock at $100, you should love it at $50. But psychology makes investors do the opposite - they sell at $50 and buy back in at $150.
Volatility vs Risk
Stocks are volatile - they'll drop 10-20% multiple times per decade. But stocks aren't risky for long-term investors. They've never had a negative 20-year return. The real risk is keeping all your money in cash and losing to inflation. Cash feels "safe" short-term but guarantees you lose purchasing power long-term. A dollar in 1990 is worth 50 cents today.
Diversification Reduces Risk
Don't put all your money in one stock, one sector, or one country. A diversified portfolio - total stock market index fund, total bond market fund, international stocks - reduces volatility while maintaining returns.
The S&P 500 is already diversified across 500 companies and all sectors. If you own Tesla stock and it crashes 70% (like 2022), you lose 70%. If you own the S&P 500 and Tesla crashes 70%, you lose 0.3%.
Never Invest Money You Can't Afford to Lose
Investments can drop 50% and take years to recover. Only invest money you won't need for at least 5 years. Emergency funds, house down payments, and tuition due next year belong in savings accounts, not the stock market.
Mistakes That Cost You
Waiting for the "Right Time"
Markets always feel uncertain. Start now with whatever you have.
Panic Selling During Crashes
Many investors earn far less than market averages because they sell during crashes and buy during peaks. The 2008 crash fully recovered and markets hit new highs. Investors who sold in panic missed this entirely. Your gut instinct during crashes is always wrong - it tells you to sell when you should buy more.
Hot Stock Tips Don't Work
Individual stock picking typically underperforms index funds over long periods. "Hot" stocks are usually overpriced when you hear about them. By the time a stock is trending on social media, you're too late. Stick with boring index funds that own everything. Tesla, Apple, and NVIDIA made early investors rich, but for every winner there are hundreds of losers that went to zero. You can't predict which is which.
Daily Checking Hurts Returns
Investors who check daily make worse decisions. Check quarterly at most.
Keeping Too Much Cash
"I'm waiting to invest when I have more money" costs you thousands in lost growth. Start with $100/month if that's all you have. Waiting 5 years to invest a lump sum means missing 5 years of compound growth that can never be recovered. Investing $500/month starting at 25 beats investing $1,000/month starting at 35, even though the second person contributes more total money.
Fees Compound Against You
A 1% annual fee costs you hundreds of thousands over 30 years due to compound losses. Choose funds with expense ratios under 0.20%. The difference between 0.10% and 1% fees is hundreds of thousands over a career.
Ignoring Taxes
Selling winners in a taxable account triggers capital gains tax. Holding at least 1 year reduces tax from 37% (short-term) to 15-20% (long-term). Max out tax-advantaged accounts (401k, IRA) before investing in taxable accounts.
Financial Media Gets It Wrong
CNBC, stock tip newsletters, and investment gurus have terrible track records. Their job is entertainment, not helping you build wealth. Most active fund managers can't beat index funds, and neither can talking heads on TV. If they could predict markets, they'd be billionaires, not selling newsletters.
Building Strategy
The Simple 3-Fund Portfolio
- 60% U.S. stocks - VTI or FZROX owns every public U.S. company from Apple to small startups
- 20% international (VXUS, FZILX)
- 20% bonds for stability during stock crashes - BND or FXNAX
This portfolio spreads your money across 10,000+ global stocks and bonds with expense ratios under 0.10%, requires just annual rebalancing as you increase bond allocation with age, and often beats professional fund managers over long periods.
Target-Date Funds
Can't be bothered with 3-fund portfolio? Use a target-date fund (like Vanguard Target 2050). These automatically adjust stock/bond mix as you age and rebalance for you. Slightly higher fees (0.15%) but complete autopilot. Pick the fund with a date closest to when you'll retire.
Where to Put Your Money
- Build $1,000 emergency fund
- Contribute to 401(k) up to employer match
- Pay off high-interest debt (credit cards over 10% APR)
- Max out Roth IRA ($7,000/year)
- Max out 401(k) ($23,500/year)
- Build full 3-6 month emergency fund
- Invest in taxable brokerage account
- Consider real estate, 529 plans, HSA
Move to the next step only after completing the previous one. Employer match gives you an immediate 50-100% return. Roth IRA comes before maxing your 401(k) because you get more investment options and flexibility.
Rebalancing Strategy
Once a year, sell winners and buy losers to return to target allocation. If stocks have a great year and grow from 80% to 85% of your portfolio, sell 5% and buy bonds. Don't rebalance more often - it triggers unnecessary taxes and fees.
Real Estate or Stocks?
Stock Market Returns
The S&P 500 has returned 10% annually since 1926. You can sell shares in seconds, buy in with $100, and own thousands of companies through a single index fund. Transaction costs are basically zero at Fidelity or Schwab.
The downside? You can't use leverage without risky margin loans. And watching your portfolio drop 30% during a crash tests your discipline in ways real estate doesn't.
Real Estate Returns
Housing has historically appreciated 3-4% annually, but rental income pushes total returns to 8-9% if you buy smart. A $300,000 property with a $50,000 down payment and 7% mortgage costs about $2,000/month. Rent it for $2,500 and you're cash-flow positive—until the roof needs replacing.
Budget 1-2% of property value annually for maintenance. Factor in 6% realtor fees when you sell. And if your tenant stops paying, you're covering that mortgage yourself for months while the eviction processes. Properties take 3-6 months to sell in most markets, longer in a downturn.
When Real Estate Makes Sense
- $50k+ for down payment
- Local rent-to-price ratio above 0.8% monthly (a $300k house renting for $2,400+/month)
- Can handle maintenance yourself or pay managers 10%
- Want leverage to control $300k asset with $50k
- Time for screening, repairs, city housing departments
Why Most People Stick With Stocks
You can start with $100 instead of $50,000. You can rebalance your entire portfolio in 10 minutes instead of spending weekends showing properties. You own pieces of 500 companies instead of betting everything on one house in one neighborhood.
Real estate works for people who enjoy the landlord business.