What compounding does
Growth is a share of the balance, so it grows too. Watch the year it overtakes everything paid in.
For educational purposes only. Simplified illustrations for self-led learning: explore at your own pace, in any order, and use the numbers you choose. Nothing here is based on your circumstances, so it is not financial, investment or tax advice, and not a recommendation.
Interactive illustration
What compounding does over time
Growth overtakes everything paid in during year 20. By year 25 it is 59% of the balance — most of what is there is money that was never contributed. Land two points either side of 6.0% and the same plan ends between $284,202 and $548,915. The $264,713 between them comes from the assumption rather than from anything anyone did. An amount left alone at this rate takes about 11.9 years to double.
A general illustration of how compounding behaves, not a projection, a quote or a recommendation, and not a claim about any investment or account. It compounds monthly at a steady rate, which is not how returns arrive: real returns vary year to year, can be negative, and the order they arrive in changes the outcome. It is before fees, tax and inflation, all three of which compound as well. Nothing here accounts for anyone’s circumstances, and no recommendation can be made without reviewing them.
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One question at the end of each article and interactive: 15 points for the right answer, 5 for answering. Membership is free, and your name is never shown to other members.
- The early years look like a straight line, which is why the shape surprises people
- There is a year when growth is worth more than every contribution combined
- Two points either way on the assumed return moves the answer more than the contributions do