This tool projects a starting balance plus a fixed monthly contribution forward at a constant assumed return, then splits the ending balance into what you actually paid in and what growth added on top. The output is a planning estimate, not a forecast: index funds never return the same rate every year, they average toward it over long stretches, so treat the final number as one plausible path among many rather than a promise.
What counts as a reasonable return assumption
A broad US total-market or S&P 500 index fund has historically compounded near 10% annually before inflation over multi-decade stretches, and closer to 6-7% after adjusting for inflation. Many planners deliberately use a lower figure than the historical average, often 6-8% nominal, to avoid overstating what a portfolio will actually be worth in today's spending power.
A global or ex-US developed-market index typically assumes something a touch lower, since non-US equity markets have compounded a bit slower over the past several decades. A bond-heavy index fund belongs nowhere near 7%; a 60/40 stock-bond blend usually sits closer to 5-6% nominal.
If the return you're entering is above 10%, ask whether it reflects a single strong recent stretch rather than a full market cycle that includes at least one serious drawdown.
Two contribution scenarios worked through
Start with 5,000 already invested and add 300 a month at an assumed 8% return for 20 years. Contributions total 77,000 over that period (the starting balance plus 240 monthly deposits), and the ending balance comes out to roughly 201,300 — meaning growth alone contributed about 124,300, or well over half the final total.
Drop the assumed return to 6% with everything else unchanged and the same 77,000 contributed grows to roughly 155,200, with growth contributing about 78,200. Two percentage points of assumed return, held for 20 years, is worth around 46,100 on this contribution schedule — a reminder that the rate you pick matters as much as how much you save.
Now compare starting immediately versus waiting a decade. Investing 400 a month at 7% for 30 years reaches roughly 488,000. Investing the same 400 a month at 7% for only 20 years — the same plan started ten years late — reaches roughly 208,400. The ten-year delay costs close to 280,000, even though the total contributed only differs by 48,000. Most of that gap is growth compounding on growth in the years you skipped.
Where the flat-rate assumption breaks down
The projection compounds the same monthly rate every single month, which no real index has ever done. A fund that averages 8% annually might return 25% one year and lose 18% the next; the arithmetic mean and the compound outcome only converge if you hold the full period and keep contributing through the down years rather than pausing.
It also ignores sequence-of-returns risk. Two investors with the identical average return can end up with meaningfully different balances if one experiences the crash early in the timeline and the other experiences it late, because a downturn hits a smaller balance harder in percentage terms on year one than it does on year twenty.
The model assumes contributions never change, but most people's monthly investing capacity rises with income, and few people invest a perfectly level amount every month for 20-plus years without a pause. Treat a level contribution as a floor scenario, not a guarantee that you'll never do better.
Finally, this figure is pre-tax and pre-fee unless you've already netted your assumed return down for fund expenses. An index fund charging even a modest expense ratio quietly reduces the compounding rate every year it's held, so check that your input return is net of fees, not the fund's headline gross performance.
Account type and tax-year timing matter more than the model shows
In the US, money growing inside a 401(k) or IRA compounds without annual tax drag, while the same portfolio held in a taxable brokerage account loses some return each year to dividend and capital-gains taxes, unless you're deliberately holding tax-efficient index funds and rarely selling. The projection here doesn't distinguish between the two, so a taxable-account user should shade the assumed return down.
UK investors sheltering contributions inside an ISA face annual contribution limits set by HMRC that reset each 6 April, and outside a wrapper, dividends and gains above the relevant allowances are taxable; neither factor is built into a flat compounding model.
Contribution limits for tax-advantaged US retirement accounts change most years with inflation adjustments announced by the IRS, so a monthly figure that assumes maxing out a 401(k) or IRA should be checked against the current-year limit rather than a number from a prior year.
Frequently asked questions
- What return rate should I assume for an index fund projection?
- Most planners use somewhere between 6% and 8% nominal for a broad US stock index fund, deliberately below the roughly 10% long-run historical average, to build in a margin against a weaker-than-average stretch. A global or bond-heavy portfolio should use a lower figure, often 4-6%.
- How much difference does starting 10 years earlier actually make?
- On 400 a month at a 7% assumed return, investing for 30 years instead of 20 reaches roughly 488,000 versus roughly 208,400 — a gap of about 280,000, even though the extra decade only adds 48,000 in actual contributions. The rest is compounding that never had time to happen in the shorter run.
- Does this projection account for market crashes?
- No. It compounds one fixed monthly rate for the entire period, so it can't show what happens if a downturn arrives early versus late in the timeline, even when the long-run average return is identical. Real portfolios with the same average return can finish with different balances depending purely on when the bad years land.
- Should I use my fund's gross return or its return after fees?
- Use the return after fees. An index fund's expense ratio compounds against you every year it's held, and a projection built on a gross historical average without subtracting the fund's expense ratio will overstate the ending balance, sometimes by a meaningful margin over 20-plus years.
- How does compounding split between contributions and growth over time?
- The growth share rises the longer the horizon runs. On 5,000 plus 300 a month at 8% for 20 years, growth accounts for roughly 62% of the final balance, up from a much smaller share in the early years when the balance is still mostly what you've deposited.
- Is a level monthly contribution realistic to assume for decades?
- It's a simplifying floor, not a prediction. Most investors' monthly contribution capacity rises with income over a career, so a projection that holds the monthly amount flat for the full period tends to understate what a real, growing contribution schedule would produce.
Sources
- Internal Revenue Service — retirement plan contribution limits — Annual 401(k) elective deferral limit, adjusted for inflation each year (2025 limits published by the IRS).
- HMRC — Individual Savings Accounts (ISA) — Annual ISA subscription allowance and the 6 April tax-year reset date that governs UK sheltered contributions.