Question 1

What return rate should I use?

Accepted Answer

For long-term stock investments, 7-10% is often used (7% inflation-adjusted, 10% nominal). Bonds typically return 4-6%. High-yield savings might return 4-5%. Use conservative estimates for planning—it's better to exceed your projections than fall short.

Question 2

How does compound interest work?

Accepted Answer

Compound interest means you earn returns on both your original investment AND on previously earned returns. This creates exponential growth over time—the longer you invest, the more dramatic the effect.

Question 3

Does this account for taxes?

Accepted Answer

No, this shows gross returns before taxes. Actual returns depend on your account type (401k, IRA, taxable), tax bracket, and holding period. Consult a tax professional for after-tax projections.

Question 4

Should I invest a lump sum or dollar-cost average?

Accepted Answer

Historically, lump sum investing has higher expected returns since money is in the market longer. However, dollar-cost averaging (regular contributions) reduces timing risk and is more practical for most people building wealth over time.

Question 5

Are these projections guaranteed?

Accepted Answer

No, all investments carry risk. Historical returns don't guarantee future results. Markets can be volatile short-term, and you could lose money. This is an estimate for planning purposes only.

Investment Return Estimator

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