Compound interest calculator

Why 7%?

The default rate is set to 7% on purpose, not pulled from a hat. Over the long run — think decades, not years — a globally diversified basket of stocks (something like the MSCI World or the S&P 500) has delivered roughly 10% per year nominal. That's the headline number you see quoted in finance books.

But headline numbers ignore inflation, and inflation has averaged something like 3% per year over the same long stretch. When you subtract inflation, you're left with about 7% per year in real terms — i.e. in today's purchasing power.

A few honest caveats

• 7% real is an average. Real life delivers it as a long string of bad years, great years, and flat years that average out to something like 7% — not 7% every December.
• Past performance is the only data we have, but it isn't a promise. Use the calculator to feel the shape of compound growth, not to plan a retirement to the nearest euro.
• Bonds, cash, and "safer" stuff usually return less than stocks. If your portfolio isn't 100% equities, your real return will be lower — try 4% or 5% to see how the curve changes.
• Taxes and fees haven't been subtracted. A 0.2% index fund and a sane tax wrapper barely dent the picture; a 2% actively managed fund eats a surprisingly large slice of the final number.