Compound Interest FAQs
How does compounding work?
Compounding means you earn returns on your initial amount and on prior returns. The more frequently you compound and the longer you invest, the greater the effect.
What return should I enter?
Use a conservative long‑term estimate (e.g., 5%–8% annually for a mixed stock/bond portfolio). You can test multiple scenarios to understand best/worst cases.
Monthly vs yearly compounding?
More frequent compounding produces slightly higher growth. Monthly compounding is a common simplification and aligns with monthly contributions.
How should I handle inflation?
To model real (inflation‑adjusted) growth, subtract expected inflation from your return (e.g., 7% return − 2.5% inflation ≈ 4.5% real growth).