Compound Interest Calculator
a tool developed by Yaniss Illoul
Determine how much your money can grow using the power of compound interest.
What is compound interest?
The concept of compound interest investing is the concept behind the addition of interest to the principal sum of an investment, or in other words, interest on interest. It is the result of reinvesting the gains and dividends realised, rather than withdrawing them, so that interest in the next period is then earned on the principal invested sum plus previously accumulated interest.
It is a key concept of the FIRE movement (Financial Independence, Retire Early) as well as anyone with a plan to retire with a lump sum that keeps on growing as you withdraw your living expenses. The idea is that over the years, the gains realised by compounded interest far outclass the amount invested.
What kind of investment is the most suggested to benefit from compounding interest?
Investing in ETFs (Exchange Traded Funds), and most specifically ETFs that includes an extremely diversified range of assets, is considered the “safest” way to invest your money in order for it to grow over an extended period of time. A fund like one mirroring the S&P500’s health has been averaging an annual return of 10.9% over the last few decades. As a point of reference, investing 100 USD a month for 10 years in such a fund is likely to give you a portfolio valued at 21.7K USD from which you only contributed a total of 12k which amounts to 9.7k in pure capital gain or an 80% increase from your contributions.