Investment Calculator

How compound growth works

Compound growth means your returns start earning returns. In the first year, a $10,000 investment at 7% earns $700. In the second year, the 7% applies to $10,700, so it earns $749. The extra $49 is the return on the first year’s return. Over decades, that effect dominates the result.

Future value = initial deposit × (1 + periodic return)^periods + contribution × [((1 + periodic return)^periods − 1) ÷ periodic return].

The calculator converts the annual return to the contribution frequency using the effective annual rate, so a 7% annual return compounded monthly is about 0.565% a month, not 7% ÷ 12. That keeps the annual result consistent whether you contribute weekly, fortnightly, monthly or annually.

Time is the most important input. Doubling the return assumption is unrealistic; doubling the time horizon is usually achievable. A 20-year projection gives compounding far more room than a 10-year one, which is why starting early matters more than finding the perfect investment.

Regular contributions and timing

Regular contributions do most of the work at the start. In the early years, the balance is mostly money you put in. As the balance grows, investment growth becomes the larger share. The “growth share” figure in the calculator shows when that crossover happens for your plan.

The model adds contributions at the end of each period. If you invest at the start of each period instead, each contribution earns one extra period of return. The difference is small for monthly contributions over 20 years but can be material for large annual contributions over a long horizon.

Increasing the contribution amount usually has a bigger effect than a small change in the return assumption, because the contribution is certain while the return is not. If the plan depends on an optimistic return, increasing the contribution or extending the time frame is the more reliable adjustment.

Choosing a realistic return

Australian shares have returned roughly 8% to 9% a year over long periods, including dividends but before inflation, fees and tax. International shares have been similar in Australian dollar terms. Cash and term deposits have returned much less. A diversified portfolio sits somewhere between, depending on the asset mix.

• Cash and term deposits: 3% to 4.5%, low volatility, capital stable.
• Conservative portfolio: 4% to 5.5%, mostly bonds and cash with some shares.
• Balanced portfolio: 6% to 7%, a mix of shares and defensive assets.
• Growth portfolio: 7% to 9%, mostly shares and property, with larger swings.

These are nominal returns before fees and tax. Subtract your investment fee, and subtract expected inflation if you want a real return. A 7% nominal return with 0.5% fees and 2.5% inflation is about a 4% real return.

Principal vs growth

The final balance has two parts: the money you contributed and the growth earned on it. The contributed amount is certain; the growth is an estimate. Splitting them makes it clear how much of the result depends on market returns rather than on your own savings discipline.

Tax changes the split. Interest is taxed each year at your marginal rate. Australian dividends carry franking credits, and capital gains are taxed when you sell, with a 50% discount for individuals who hold the asset for more than 12 months. The calculator shows a pre-tax result, so the after-tax growth will be lower, especially for high-income investors and short holding periods.

To compare an investment with paying down debt or salary sacrificing into super, use the same time horizon and a realistic after-tax return for each option. The super projection calculator models contributions inside super, and thesalary calculator shows the take-home cost of investing more each month.