Investment calculator: compound interest
Interest on interest. Returns are added not only to your contributions but also to the returns of previous years, so wealth grows faster and faster. The first years look boring; the last years do most of the work. Enter your own numbers and watch what share of the final amount is your contributions and what share is pure return.
Year-by-year table
Rule of 72
A quick estimate without a calculator: 72 divided by the annual return is roughly the number of years it takes for a sum to double. At 6% that is 12 years, at 8% nine years, at 2% in a savings account as many as 36 years. It works the other way too: at 3% inflation, money under the mattress loses half its value in 24 years.
Why 7%?
A broad global stock index (for example MSCI World) has returned roughly 7 to 9% a year before inflation over recent decades, but with big swings: in some years it lost a third of its value. The numbers in the calculator are a smooth average; reality is bumpy. That is why you need a long horizon and money you will not necessarily need next year.
The cost of waiting: start now or later
The most expensive thing in investing is not a bad fund or a fee, but the year you did not start. Two people with the same monthly contribution and the same return end up in completely different places just because one started earlier. Compare what waiting costs and how much more per month you would need to catch up.
The classic example
Anna invests from age 25 to 35 and then never adds anything again. Peter starts at 35 and contributes faithfully until 65. At 7% a year, Anna has more money at 65, even though she contributed only a third of what Peter did. Try it: set the age at which Anna stops in the field below.
Inflation calculator: what the same thing will cost
Inflation is the rise in prices. The European Central Bank targets 2% a year, which sounds harmless, but compounding works here too: at 2%, prices double in 35 years. In Slovakia inflation hit double digits in 2022, and a purchase that cost 100 € cost about 112 € a year later. Find out what today’s groceries, rent or car will cost in the future.
Why central banks want 2% and not 0%
Mild inflation encourages spending and investing instead of hoarding, gives wages room to adjust and keeps the economy away from deflation, where people postpone purchases because tomorrow will be cheaper. For you as a saver it means one thing: money that does not earn at least the inflation rate loses value every year.
Purchasing power calculator: what is left of your savings
The opposite view to inflation. Not what a purchase will cost, but how much today’s savings will buy in the future. Money in a current account earning nothing loses a third of its value in 20 years at 2% inflation. Enter the interest your savings earn and see their real future value.
Nominal and real
Nominal value is the number on your bank statement. Real value is what that number buys. A savings account paying 2% with 3% inflation looks like it is earning, but in real terms it loses one percent a year. The exact real return is (1 + interest) / (1 + inflation) minus 1; simple subtraction is close enough for everyday numbers.
Goal calculator: how much to save each month
The calculation turned around. You know how much you want and by when: a deposit on a flat, the children’s education, a car or your first 100,000 €. The calculator works out how much you need to set aside every month and shows how much a longer horizon or a higher return helps.
What would help
Fee calculator: the difference between 0.2% and 1.5%
A fund management fee looks like a trifle, but it is charged every year on your entire holding and takes exactly from what is supposed to grow. A one-percent difference per year means roughly a quarter of your wealth after 30 years. Compare a cheap index ETF with a typical actively managed fund or a unit-linked insurance policy.
Where to find the fee
Every fund in the EU must publish a KID (key information document). Look for the line “ongoing costs” or TER. Broad index ETFs typically charge 0.1 to 0.3%, actively managed mutual funds 1.5 to 2.5%, and unit-linked insurance often even more once all the items are added up.
Entry fee
Besides the annual fee there is often a one-off entry fee, in Slovakia frequently 3 to 5% of every contribution. Out of every 100 € you actually invest 95 €. Saving 200 € a month for 30 years, that is 3,600 € paid up front, before any annual fee. The calculator leaves it out to keep the comparison clear.
Emergency fund: how much to keep aside
Before you invest anything, you need a cushion for a broken washing machine, losing your job or a longer illness. Without it, every unexpected expense pushes you into an expensive consumer loan or into selling investments at the worst possible time. The usual recommendation is 3 to 6 months of essential expenses in a savings account you can access immediately.
Where to keep the fund
Not in stocks and not in cash at home. Ideal is a savings account or a term deposit with instant withdrawal, separate from your current account so you do not spend it on everyday things. In the euro area the deposit guarantee scheme covers 100,000 € per person and bank, so a fund up to that size carries no credit risk.
Loan and mortgage calculator
Compound interest also works against you. On a 30-year mortgage you often pay more than half the amount borrowed in interest; on a consumer loan with a double-digit rate it is even worse. Find out the monthly payment, total interest and what an extra payment every month does.
Year-by-year repayment schedule
Good debt and bad debt
A low-rate mortgage on a home that replaces rent can be sensible. A consumer loan for a holiday, a phone or a car beyond your means is the opposite: you are repaying something that loses value and paying a double-digit rate for it. A credit card with an unpaid balance is the most expensive commonly available debt.
Repay early, or invest?
Compare the loan rate with the expected return after tax. Debt at 4% is a guaranteed “return” of 4% when repaid early; stocks promise around 7%, but without any guarantee. Debt above 6 to 7% is always worth repaying first; at low rates it is reasonable to do both.
Retirement income and financial independence: the 4% rule
How much do you need to live off your wealth? Historical studies show that a diversified portfolio can sustain withdrawals of about 4% a year (adjusted for inflation) with a high chance of lasting 30 years. Turned around: you need roughly 25 times your annual expenses. The calculator works out your number and estimates how many years it takes at your current pace.
The savings rate matters more than the return
Someone who saves 10% of their income needs over 50 years of work at a 5% real return. At 25% it is about 32 years, at 50% roughly 17 years. The reason is twofold: a higher savings rate raises contributions and at the same time lowers the amount you will live on. The calculator works in today’s prices, so enter a real return, not a nominal one.
Nine principles that follow from the calculators
None of this is a secret. The difference between people who have wealth at fifty and those who do not is rarely income and almost always these habits.
Emergency fund first, then investments
Three to six months of expenses in a savings account. Without it every problem ends in selling investments at the wrong time or in an expensive loan.
Pay off expensive debt
Credit cards and consumer loans above 6 to 7% are a guaranteed loss that no investment reliably beats. Repay them before investing.
Pay yourself first
A standing order to your investment account right after payday. What you do not see in your current account, you do not spend. Ideally 15 to 20% of income, but even 50 € a month counts.
Time matters more than the amount
Ten extra years do more than doubling the contribution. The best time to start was ten years ago; the second best is this month.
Fees are certain, returns are not
A broad index ETF with a fee below 0.3%. Every extra percent a year is a quarter of your wealth after 30 years. Refuse entry fees and unit-linked insurance.
Diversify and do not try to time the market
Nobody repeatedly guesses the bottom or the top. A regular monthly contribution regardless of price (DCA) removes emotion and averages the purchase price.
A drop is not a loss until you sell
The stock market falls 20% roughly once every few years and 30% or more about once a decade. Whoever did not sell has so far always seen new highs. Write the plan in calm times, not during a panic.
Nominal numbers lie
Subtract inflation from every return. A savings account paying 2% with 3% inflation loses money. The goal is not “to have a million” but to have the purchasing power of today’s million.
Automate it and leave it alone
The best investor is the one who forgets about the portfolio. Checking once a quarter is enough. Daily watching leads to needless trades, which statistically lower returns.
Glossary
The terms used on this page, explained without the fluff.
- Compound interest
- Returns are earned on the returns of previous periods, not just on the original deposit. That is why growth accelerates over time.
- Inflation
- The general rise in prices, measured by a consumer price index. It lowers the purchasing power of money.
- Purchasing power
- The amount of goods and services a given sum buys. It falls as prices rise.
- Nominal and real return
- Nominal is the number on the statement. Real is adjusted for inflation and tells you how much richer you actually are.
- ETF
- An exchange-traded fund, usually tracking an index (for example MSCI World). A cheap way to buy hundreds of companies at once.
- TER
- Total Expense Ratio, the fund’s total annual cost. It is deducted continuously from the fund’s assets, so you never see it on a statement.
- KID
- Key information document, mandatory for every fund in the EU. It lists fees, risk and return scenarios.
- DCA
- Investing the same amount regularly regardless of the current price (Dollar Cost Averaging). It averages the purchase price.
- Diversification
- Spreading money across many companies, industries and countries so that one failure does not endanger the whole.
- Annuity payment
- The same monthly payment for the entire term of a loan. At the start it is mostly interest, at the end mostly principal.
- Principal
- The amount borrowed, excluding interest. An extra payment reduces the principal and with it all future interest.
- APRC
- Annual percentage rate of charge. The true cost of a loan including fees; compare loans by it, not by the interest rate.
- Emergency fund
- Money for unexpected expenses, available immediately and kept separate from everyday finances.
- Savings rate
- The share of income you set aside. The strongest lever on the road to financial independence.
- Safe withdrawal rate
- The percentage of wealth you can withdraw each year with a high probability of never running out. Historically around 4%.
- Rule of 72
- An estimate of doubling time: 72 divided by the annual percentage growth rate.
Sources and recommendations
The calculators are a simplified model. If you want to go deeper, this is a good place to start.
- ECB: euro area inflation (HICP) official data and an explanation of the 2% inflation target
- Statistical Office of the Slovak Republic consumer price index for Slovakia by month and year
- National Bank of Slovakia: consumer information deposit guarantee, loans, insurance, where to complain
- Bogleheads wiki a free and independent guide to passive investing
- Investopedia: the 4% rule origin, assumptions and criticism of the Trinity study
- Book: Morgan Housel, The Psychology of Money on why behaviour beats mathematics
- Book: John C. Bogle, The Little Book of Common Sense Investing why a cheap index fund is enough
- Book: George S. Clason, The Richest Man in Babylon century-old stories about paying yourself first