Compound interest and monthly contributions explained
Compounding means assumed gains are added to capital and may themselves generate further gains over time.
Separate contributions from growth
A useful projection shows two elements: what you actually contributed and the growth from the return assumption. This avoids attributing to the market what comes from your saving discipline.
Why time matters
At first, contributions often explain most of the capital. Over a long horizon, compound growth may play a larger role, but it remains uncertain and uneven in reality.
Compare several scenarios
Test a zero-return case, a cautious case and a more favourable one. Then check whether the project remains acceptable in the cautious scenario instead of keeping only the highest result.
Frequently asked questions
Are compound returns guaranteed?
No. Compounding describes a mathematical mechanism. The return used in a projection remains hypothetical.
Is it better to start early or contribute more?
Both can help. A simulation lets you compare a longer period with a higher contribution.