Frequently Asked Questions
What is the difference between nominal and inflation-adjusted returns?
Nominal returns are the raw percentage gains on your investment. Inflation-adjusted (real) returns subtract the effect of inflation, showing what your money is actually worth in today's purchasing power. At 3% inflation, $100 in 20 years needs to grow to $180 just to maintain the same buying power.
What is employer match and how does it work?
Employer match means your company matches a percentage of your contributions. For example, a 50% match on 6% contributions means if you contribute 6% of your salary, your employer adds 3% extra — effectively a 50% instant return on that portion of your contribution. Always contribute enough to get the full match.
Is 7% a realistic expected return?
The S&P 500 has historically returned ~10% nominal and ~7% inflation-adjusted over long periods (20+ year horizons). Short-term results vary dramatically. A 7% real return is a reasonable long-term planning assumption, though diversification across stocks/bonds would typically lower the expected return to 5-6% real.
How does compound interest work?
Compound interest means you earn returns on your returns, not just your original principal. The growth accelerates over time — in year 1, a $10,000 investment at 7% earns $700. In year 20, that same investment earns returns on $38,000+. This "compounding" effect is why starting early matters so much.
How much should I contribute to my savings or retirement?
A common rule: save 15-20% of your income, including any employer match. Maxing out employer match (usually 3-6% of salary) is the bare minimum — it's free money. After that, max tax-advantaged accounts like 401k and HSA before taxable brokerage accounts.
What is the difference between this and a HYSA or savings account?
High-yield savings accounts (HYSA) currently pay ~4-5% APY — safe but modest returns. The stock market has historically returned 7-10% inflation-adjusted over 20+ years, though with more volatility risk. This calculator helps you project the growth potential of investing in diversified index funds versus holding in cash.