What compound interest really does
Compound interest doesn't just mean that capital grows. What is crucial is that the income that has already been generated generates income again. This is exactly why short and long terms differ so significantly.
Three computers, three perspectives
| computer | Typical use case |
|---|---|
| Compound Interest Calculator | General capital development with fixed interest rates |
| ETF calculator | Portfolio development with starting capital, savings rate, TER and optional inflation |
| ETF savings plan calculator | Focus on regular monthly payments |
Four sizes with particularly high leverage
1. Term
Long terms increase the compound interest effect the most. If you add ten additional years, the result will often change more than with a slightly higher savings rate.
2. Return on investment
Even a difference in returns of just a few tenths of a percent adds up significantly over many years.
3. Costs
Ongoing fund costs have a quiet but lasting effect. That's why it makes sense that the ETF calculator which visibly incorporates TER.
4. Savings rate
The monthly rate is the component that many users can control most easily. That's exactly what he focuses on ETF savings plan calculator.
Why inflation adjustment makes sense
A high nominal final value sounds good. What is often more interesting is the question of what purchasing power this value will have later. That's why the inflation-adjusted view is not a marketing gimmick, but rather a sober classification.
Typical thinking errors
- Confusing returns with guarantees
- Ignore costs
- only look at the final capital, not paid-up capital
- Confusing too short terms with long-term goals
Conclusion
The best calculator is not the one with the highest number, but the one that shows its assumptions openly. This is exactly why the combination of history, calculation method and different perspectives is worthwhile.