Growth on growth
Compound interest means your growth earns growth. In year one, $10,000 at 7% earns $700. In year two, the 7% applies to $10,700, so it earns $749. The yearly amount keeps getting bigger even though the rate never changes. After 40 years at a steady 7%, $10,000 becomes about $149,745, and year 40 alone adds more than $9,700.
Why the end matters so much
Because each year builds on the last, the biggest dollar gains come at the end. In the pilot example, about 49% of the final balance shows up in the last 10 years. That's the practical meaning of "time in the market": the early years set up the later ones. Cut five years off the end and you lose far more than five early years' worth of growth.
Adding monthly deposits
Most people don't invest one lump sum. The calculator adds a deposit at the end of each month and compounds everything together. With deposits, the formula is the lump-sum part plus a "future value of an annuity" part: deposit × ((1 + i)^n − 1) ÷ i, where i is the monthly rate and n the number of months.
Yearly vs monthly compounding
These give slightly different answers for the same stated rate. "Yearly" here means the rate is an effective yearly rate: monthly deposits grow at the matching monthly rate, (1 + r)^(1/12) − 1. "Monthly" means the stated rate is an APR divided by 12, which works out a bit higher over a year. Different videos used different conventions, so the page shows which one is active.
The rate is the whole story
Compare 12% and 7% over 40 years and the gap is enormous, because the difference compounds too. That's why a claim built on a high assumed rate can sound impressive. The rate here is hypothetical and steady. Historically, the S&P 500 compounded about 10% a year from 1928 to 2025 before inflation (about 6.8% after), with plenty of losing years along the way.
What's not included
Fees, taxes and inflation all shrink the real result. You can add an inflation rate to see today's dollars, and the fee calculator shows what a yearly fee does to the same math.
Sources
- SEC Investor.gov: Compound Interest Calculator
- A. Damodaran, NYU Stern: historical returns on stocks, bonds and bills
- U.S. Bureau of Labor Statistics: CPI Inflation Calculator
Last reviewed: Sep 28, 2026