Disclaimer: This calculator is for informational purposes only and does not constitute financial advice. The projected values are based on the inputs provided and do not guarantee future returns.
Compound Growth Calculator
Understanding how annual growth rates compound over time is crucial for investment planning. See how different growth rates translate to real returns over 5 years.
5-YEAR COMPOUND GROWTH RATES
| Annual Growth Rate | 5-Year Multiplier | Total Increase |
|---|---|---|
| 7% | 1.40× | +40.3% |
| 10% | 1.61× | +61.1% |
| 12% | 1.76× | +76.2% |
| 15% | 2.01× | +101.1% |
| 20% | 2.49× | +148.8% |
| 25% | 3.05× | +205.2% |
| 30% | 3.71× | +271.3% |
Example: $10,000 Investment
With a 15% annual growth rate, your $10,000 investment would grow to $20,114 after 5 years - more than doubling your money!
UNDERSTANDING COMPOUND GROWTH
What is Compound Growth?
Compound growth occurs when your investment returns generate their own returns over time. Unlike simple interest, compound growth means you earn returns on your initial investment plus all the returns from previous periods.
The Power of Time
The table above shows 5-year returns, but compound growth becomes even more powerful over longer periods. A 15% annual return that doubles your money in 5 years would grow to over 4× your original investment in 10 years, and more than 16× in 20 years.
Real-World Context: Nominal vs. Real Returns
When evaluating investment performance, it's crucial to distinguish between nominal and real returns. Nominal returns are the raw percentage gains. Real returns are adjusted for inflation, showing the actual increase in your purchasing power.
📊 S&P 500 Nominal Returns (Not Inflation-Adjusted)
- Long-term average (1928–2023): ~10.2% annually
- Post-WWII (1945–2023): ~11.0% annually
- Past 50 years (1973–2023): ~10.7% annually
- Past 30 years (1993–2023): ~9.9% annually
- Past 10 years (2013–2023): ~12.0% annually
📉 S&P 500 Real Returns (Inflation-Adjusted)
- Long-term average (1928–2023): ~7.0% annually
- Past 50 years: ~6.5%–7.0%
- Past 10 years: ~9.0% (due to varying inflation)
As the data shows, inflation significantly impacts your actual gains. While the S&P 500 has offered strong nominal returns, the ~7% long-term real return is a more realistic benchmark for long-term wealth growth.
The Hidden Cost: Taxes on Nominal Gains
A critical, often overlooked aspect of investing is that you pay taxes on your nominal gains, not your inflation-adjusted real gains. This "tax drag" can significantly erode your purchasing power, especially during periods of high inflation.
It's possible to have a positive nominal return that beats inflation, yet still lose purchasing power after paying taxes. This makes navigating high-inflation environments particularly challenging.
Example: The Inflation Tax Trap
- You invest $10,000 and get an 8% nominal return ($800).
- Inflation is high at 7%. Your investment barely outpaces it (0.93% real return).
- You pay a 30% tax on the $800 nominal gain, which is $240.
- Your after-tax amount is $10,000 + $800 - $240 = $10,560.
- However, your original $10,000 now needs to be $10,700 to have the same purchasing power.
- Result: Despite an 8% gain, you've lost $140 in real purchasing power (-1.4% real return).
Investment Strategy Implications
Understanding compound growth helps inform investment strategy. The difference between 10% and 20% annual returns is dramatic over time - it's not just twice as good, but results in 149% total returns versus 61% over 5 years.
INTERACTIVE CALCULATOR
Nominal Returns
After 5 Years
$20,114
Total Growth
+$10,114
Growth Multiple
2.01×
Real Returns (Inflation-Adjusted)
After 5 Years
$17,389
Total Growth
+$7,389
Growth Multiple
1.74×
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