Watch Your Money Compound

The Model

This tool projects portfolio growth under three return scenarios, Conservative (5%), Moderate (7%), and Aggressive (9%), to illustrate how compound interest works over time. Each scenario starts with the same initial amount and receives the same monthly contributions.

Key Calculations

• Annual compounding: Each year, Balance = Previous Balance × (1 + Annual Return Rate) + Annual Contribution
• Monthly to annual: Monthly contributions are multiplied by 12 and added at year-end for simplicity
• Growth vs. contributions: The difference between your final balance and total contributions is your investment growth, the money your money earned

Assumptions

• Returns are constant each year (no market volatility or negative years)
• Contributions remain the same every month for the entire period
• No taxes, advisory fees, or inflation adjustment are included
• All returns are reinvested (no withdrawals)
• The 5/7/9% rates approximate long-term historical averages for conservative, balanced, and growth portfolios

Interpreting Your Results

• The gray dashed line at the bottom shows your total contributions over time
• The colored lines show how each scenario grows, the widening gap between contributions and returns is compound growth in action
• The results cards show the final balance for each scenario and how much came from investment growth vs. your contributions
• A steeper curve later in the chart illustrates how compounding accelerates over time

Tips for Using This Tool

• Extend the time horizon to see how dramatically compounding accelerates in later years
• Notice that doubling the time horizon more than doubles the growth, that is the power of compound returns
• Even small monthly contributions matter over 20-30 years, try increasing your monthly contribution by $100-200
• The difference between 5% and 9% grows exponentially over time, which is why asset allocation matters
• In reality, returns vary year to year, use this as a directional guide, not a precise prediction