📖 The story
Kevin puts $250 per month into a global equity fund for 20 years and expects 9 % return per year.
ℹ Ordinary payment, 12 installments per year.
Topics › Mutual Funds & Securities › Long-term fund savings plan
Easy
Mutual Funds & Securities
Long-term fund savings plan
Change any number and press "Calculate" – or use "Type in" on the right to watch it entered step by step.
What you learn
Over two decades the gain in value exceeds the total of the deposits several times over – compound interest grows more powerful with every year.
In short: Over two decades the gain in value exceeds the total of the deposits several times over.
Formula
FV = K0·q^n + R·(q^n − 1)/(q − 1), q = (1+i_eff)^(1/m)
With the example numbers
q = (1+0.0900)1/12 = 1.007207, n = 20·12 = 240
FV = 250.00 $·(qn−1)/(q−1) = 159,712.93 $
FV = 250.00 $·(qn−1)/(q−1) = 159,712.93 $
How to read the formula
Every installment earns interest until the end – early installments longer, late ones shorter. The bracket (qⁿ−1)/(q−1) sums up all these differently compounded contributions at once. q is the growth factor per period: from the effective rate p.a. the matching monthly factor is derived via the ¹ᐟᵐ root. Takeaway: it is not the sum of the deposits that counts, but how long each dollar is allowed to work.
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