Mutual Fund Target
What a fixed monthly investment grows to over a set number of years.
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Formula
How the calculation works
A monthly investment compounds from the month it is paid, so the order of the payments is part of the answer. On the example, 5,000 a month at 12% for ten years ends at 1,150,193, of which 600,000 is the money put in and 550,193 is gain.
The gain is the larger half, and that is the point of investing monthly rather than saving: the early payments earn for the whole ten years while the last one barely earns at all.
Common mistakes
- Reading the return as a promise. Market returns move about, so a plan that only works at 12% is a plan that can fail; run it again at a lower figure.
- Stopping the payments in a bad year. The monthly habit is what does the work, and pausing it removes the contributions that would have bought in cheaply.
When to use it
- Use it to see what a steady monthly investment could become, and to compare a higher return against the risk it carries.
- It assumes the contribution is made each month and the return is steady. Real funds vary, so treat the figure as a planning estimate and not a balance you are owed.
Worked example
5,000 a month at 12% for 10 years: 1,150,193, of which 600,000 is your own money and 550,193 is gain.
Common questions
Is the return guaranteed?
No, market returns move about. This is an assumption, not a promise, so read the figure as an estimate.
What if I invest a lump sum?
Then use the compound interest tool instead, which is built for a one-off sum.
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