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Interest earns further interest when it stays invested. Growth depends on the rate, timing and compounding frequency.
Hypothetical constant returns are useful for understanding the mechanism, but actual investment returns vary. Fees, taxes, inflation and losses affect real outcomes. Contributions add new money and must be distinguished from investment growth.
At 5% a year, 100 becomes 105 after one year and 110.25 after two years with annual compounding.
Separate money you put in from hypothetical investment growth.
| Year | Total value | Contributions | Growth |
|---|---|---|---|
| 0 | 10,000 | 10,000 | 0 |
| 1 | 11,739.5 | 11,200 | 539.5 |
| 2 | 13,568.01 | 12,400 | 1,168.01 |
| 3 | 15,490.06 | 13,600 | 1,890.06 |
| 4 | 17,510.44 | 14,800 | 2,710.44 |
| 5 | 19,634.2 | 16,000 | 3,634.2 |
16,000 contributed. 3,634.2 in hypothetical growth.
A constant nominal annual rate divided by twelve, compounded monthly. Contributions arrive at the end of each month. No fees, taxes or inflation. Negative rates illustrate losses. These are hypothetical returns, not a forecast.
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