Investing
Investing: Index Funds, Accounts and Compounding
Investing is the part of personal finance where doing less usually beats doing more. A low-cost, broadly diversified portfolio held for decades in a tax-advantaged account outperforms most professional attempts to do something cleverer, largely because fees and taxes compound against you exactly as returns compound for you.
These guides cover the order in which to fill accounts, how index funds work, and the arithmetic of compounding that makes the first decade of contributions matter more than any later one.
Data snapshot
- Year over year
- +14.3%
- 12-month range
- 6,344 – 7,799
The S&P 500 index. It tracks the largest US listed companies and is the benchmark most broad US equity index funds are built to replicate.
Start here
Index Funds: How They Work and Which to Own
Own the market cheaply — and own very few funds.
Read the guideHow to Start Investing: The First Five Steps
The order of operations that avoids expensive mistakes.
Read the guideCompound Interest: The Maths Behind Long-Term Growth
Why the first decade of contributions matters most.
Read the guideCompound interest calculator
Estimated balance after 20 years
$176,472
- Total contributed
- $77,000
- Interest earned
- $99,472
- If returns average 5.0%
- $136,873
- If returns average 9.0%
- $230,412
Year-by-year projection
Contributions and compound growth split out for every year, so you can see when growth starts outpacing what you put in.
| Year | Contributions | Growth | End balance |
|---|---|---|---|
| Year 1 | $8,600 | $479 | $9,079 |
| Year 2 | $12,200 | $1,253 | $13,453 |
| Year 3 | $15,800 | $2,344 | $18,144 |
| Year 4 | $19,400 | $3,773 | $23,173 |
| Year 5 | $23,000 | $5,566 | $28,566 |
| Year 6 | $26,600 | $7,749 | $34,349 |
| Year 7 | $30,200 | $10,350 | $40,550 |
| Year 8 | $33,800 | $13,399 | $47,199 |
| Year 9 | $37,400 | $16,929 | $54,329 |
| Year 10 | $41,000 | $20,974 | $61,974 |
| Year 11 | $44,600 | $25,572 | $70,172 |
| Year 12 | $48,200 | $30,762 | $78,962 |
| Year 13 | $51,800 | $36,588 | $88,388 |
| Year 14 | $55,400 | $43,095 | $98,495 |
| Year 15 | $59,000 | $50,333 | $109,333 |
| Year 16 | $62,600 | $58,355 | $120,955 |
| Year 17 | $66,200 | $67,217 | $133,417 |
| Year 18 | $69,800 | $76,979 | $146,779 |
| Year 19 | $73,400 | $87,707 | $161,107 |
| Year 20 | $77,000 | $99,472 | $176,472 |
Compound interest formula
FV = P(1 + r/n)^(nt) + PMT × [(1 + r/n)^(nt) − 1] / (r/n)
Where:
- FV = Future value
- P = Principal (initial investment)
- r = Annual interest rate (decimal)
- n = Compounding periods per year
- t = Time in years
- PMT = Contribution per period
What this result is based on
This tool uses only the figures you enter and standard arithmetic. No external dataset feeds the result, so there is nothing to cite beyond the formula shown on the page.
This compound interest calculator compounds your starting balance and ongoing contributions at the rate of return you choose, then splits the ending figure between what you contributed and what the market added.
Compounding rewards time far more than timing, which the year-by-year table makes obvious.
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