Question 1

What is the difference between lump sum and regular contributions?

Accepted Answer

A lump sum investment is a single upfront payment. Regular contributions (dollar-cost averaging) means investing a fixed amount at regular intervals. Regular contributions reduce the impact of market timing and are more accessible for most investors. This calculator supports both approaches.

Question 2

What annual return rate should I use?

Accepted Answer

Historical average annual returns: US stock market (S&P 500) ~10% nominal, ~7% inflation-adjusted. Bonds ~3-5%. Savings accounts ~1-5% depending on current rates. Use conservative estimates (6-7%) for long-term planning to avoid overestimating your future wealth.

Question 3

How does inflation affect my investment returns?

Accepted Answer

Inflation erodes purchasing power over time. A 10% nominal return with 3% inflation gives a real return of about 7%. For long-term projections, use the real (inflation-adjusted) return to understand what your money will actually be worth in today's dollars.

Question 4

What is the impact of fees on investment returns?

Accepted Answer

Investment fees (expense ratios, management fees) compound over time just like returns — but in reverse. A 1% annual fee on a 7% return effectively reduces your return to 6%. Over 30 years, this can reduce your final portfolio value by 20-25%. Low-cost index funds typically charge 0.03-0.20%.

Question 5

What is the difference between CAGR and average annual return?

Accepted Answer

CAGR (Compound Annual Growth Rate) is the rate at which an investment would have grown if it grew at a steady rate. Average annual return is the arithmetic mean of yearly returns. CAGR is lower but more accurate for measuring actual investment performance over time.

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