Investment Calculator

About the Investment Calculator

Point a compound interest calculator at an investment and it quietly assumes two things that are not true. Both cost real money, and both are absent from almost every projection you will be shown.

That there are no charges. A platform fee plus a fund charge of 1% a year does not cost you 1%. It compounds against you for the whole term.

That the return arrives smoothly. It does not, and the gap between an average return and a compounded one is arithmetic rather than psychology.

This calculator projects the pot, then shows what each of those took, then converts the result into today's money.

How to Use the Investment Calculator

Enter your starting amount, what you add each month, the expected return before charges, and the term.

Then the three fields that do the real work:

Annual charges — platform fee plus fund charge, added together. Typical ranges run from about 0.2% for a cheap index tracker on a cheap platform up to 2% or more for an actively managed fund on an expensive one.

Volatility — the standard deviation of annual returns. A global equity fund runs around 15%; a mixed portfolio rather less.

Inflation — used only to convert the result into today's spending power.

Step-by-Step Example

£10,000 starting, £400 a month, 7% expected, 30 years, 1% charges, 15% volatility, 3% inflation.

  Paid in:                       154,000.00
  Before charges at 7%:          569,153.37
  After 1% charges:              462,031.77
  After volatility drag:         368,353.42
  In today's money:              151,756.73

The headline number people are usually shown is the second one. The one they actually experience is closer to the last.

What a 1% Charge Really Costs

  1% a year for 30 years  =  107,121.60
                          =  18.82% of the pot

A 1% annual charge removed nearly a fifth of the money.

The reason is that the charge is quoted annually and experienced cumulatively — exactly the wrong way round for noticing it. Each year's charge is not just that year's money; it is that money plus everything it would have earned in all the years afterwards.

It also comes off the rate, not the balance. The money compounds at 6% instead of 7%, and a single percentage point over thirty years is enormous.

This is the most controllable number on the page. The difference between a 1% fund and a 0.25% one is very often not a difference in what they actually hold — and unlike the return, the charge is known in advance and certain.

Why an Average Return Is Not What You Get

Here is the exact case, no approximation:

  Year 1:  +20%
  Year 2:  −10%

  Average return:     (20 − 10) / 2  =  +5% a year
  Actual outcome:     1.2 × 0.9      =  1.08 over two years
  Compounded rate:    √1.08           =  3.92% a year

Averaged +5%. Compounded 3.92%. The money does not know what the average was.

The cause is that a loss needs a larger gain to undo it than the gain that caused it — a 10% fall needs an 11.1% rise to get back. Any bumpy path ending at the same arithmetic average leaves you with less than a smooth one.

The estimate

The standard approximation for this shortfall is half the variance:

  drag ≈ σ²/2
  At 15% volatility:  0.15² / 2  =  1.13 percentage points a year

On the example figures that is another £93,678 gone.

Note that the two-year demonstration above is exact and this estimate is not — it is precise only in the continuous lognormal limit. The calculator labels it as an approximation for that reason.

Comparing Against What You Paid In

One trap worth naming, because it is easy to fall into and it condemns perfectly sound plans.

The final value in today's money is £151,756.73. The contributions total £154,000. So the plan lost money?

No. Those £154,000 of contributions were paid over thirty years, and £400 paid in year thirty was never worth £400 of today's money. Discounted properly, the contributions are worth £104,875.75 today.

  Real final value:                151,756.73
  Real value of contributions:     104,875.75

Which is a solid real gain. Comparing a real final value against a nominal contribution total is apples to oranges, and it always makes the plan look worse than it is. The calculator does the discounting for you.

Understanding Your Result

What you end with is the pot after charges and volatility, in future money.

In today's money is what it will buy.

Yours against growth splits the total between contributions and return.

What the charges cost is the figure to act on. It is the only input here that is both certain and under your control.

Worth knowing flags whichever applies: heavy charges, a genuine real loss, or the real return the plan is earning.

When Should You Use This Calculator?

Before choosing a fund or platform. Run it at 0.25% and at 1% and look at the difference.

When reviewing a projection you have been given. Most are gross, nominal and smooth. This one is none of those.

To set expectations honestly. The nominal thirty-year figure is a very large number, and the honest version is much smaller.

To test how much the return assumption matters. If your decision flips between 6% and 8%, it was never a robust plan.

Common Mistakes

Ignoring charges because they sound small. 1% removed 18.82% of the pot here.

Taking the charge off the final balance. It comes off the rate, every year.

Treating an average return as what you will get. Volatility guarantees you get less.

Judging a real result against nominal contributions. Discount them first.

Assuming past returns. 7% nominal is roughly what broad equity markets have delivered over long periods. It is an assumption, not a promise, and the next thirty years are not obliged to resemble the last.

Forgetting the order of returns. A poor decade at the start and a poor decade at the end produce the same average and very different outcomes if you are drawing on the money.

Leaving tax out. Outside a tax wrapper, tax comes off as you go. The savings calculator shows what that does.

Every figure here is an estimate for planning. Investments can fall as well as rise, and this is not financial advice.