Investment Return Calculator

Compound growth calculates returns on both the original principal and accumulated gains. For a lump sum the formula is Future Value = Present Value x (1 + r)^n, where r is the annual return rate and n is the number of years. Regular monthly contributions need the future value of an annuity version, FV = PMT x [((1 + r/12)^(12n) - 1) / (r/12)], because each payment compounds for a different length of time. The rate and the term you enter therefore do far more of the work than the size of the contribution.

Nominal returns represent the headline growth rate before accounting for inflation. Real returns strip inflation out to show the actual gain in purchasing power, and the correct method divides rather than subtracts. An investment growing 7% while inflation runs at 3% delivers a real return of approximately 3.88%, worked out as (1.07/1.03) - 1. Over long periods the difference stops being academic. £100,000 growing at 7% nominal for 30 years reaches £761,226, but at 3% inflation its real purchasing power is only £352,365.

Charges compound negatively in exactly the way returns compound positively, which is how a small percentage turns into a large number. A 1% annual charge on a £100,000 portfolio growing at 6% over 30 years costs approximately £132,000 in foregone growth, nearly as much as the original investment. Index funds sit at the cheap end, with Vanguard LifeStrategy 80% Equity at 0.22% OCF and iShares Core MSCI World at 0.20%. Active funds cost more, at 0.94% for Fundsmith Equity and 0.66% for Lindsell Train UK Equity. Platform fees stack on top, from Vanguard at 0.15% and AJ Bell at 0.25% up to Hargreaves Lansdown at 0.35% (on the first £250k, since March 2026) with a broader fund range, while Interactive Investor charges a flat £11.99 a month that works out cheapest above £50k.

Choosing a return assumption is the hardest input to get right. The FTSE 100 has produced 7-9% a year including dividends over periods of 30 years or more, with the FTSE All-Share similar and the S&P 500 nearer 10%. UK gilts have returned 3-5%, corporate bonds 4-6% and cash savings 2-4%. After roughly 3% long-run inflation that leaves equities at 4-6% real, bonds at 0-2% and cash somewhere between -1% and +1%. Equities have beaten bonds across more than 70% of rolling 20-year periods globally, although past performance settles nothing about the next 20.

The scale of compounding only becomes obvious in the later decades. £10,000 at 7% is worth £19,672 after 10 years, £38,697 after 20, £76,123 after 30 and £149,745 after 40. Add £200 a month to that starting pot and 30 years produces around £321,000, of which £82,000 is money you paid in and £239,000 is growth. As a quick mental check, the Rule of 72 divides 72 by the rate to give a doubling time of 14.4 years at 5%, 10.3 years at 7% and 7.2 years at 10%.

Where the money sits matters nearly as much as what it earns. An ISA shelters £20,000 a year with all gains free of tax, while a pension gives relief at your marginal rate of 20-45% on the way in and allows 25% to be taken tax-free from 55, rising to 57 in 2028. Junior ISAs take £9,000 a year, and the Lifetime ISA £4,000 for under-40s with its 25% bonus. A general investment account has no shelter at all, and the allowances that used to soften it have shrunk, with the capital gains allowance at £3,000 for 2026/27 against £12,300 in 2022, and the dividend allowance at £500.

Asset allocation usually tracks the time you have left rather than temperament. Investors in their 20s to 40s commonly hold 80-100% equities, those in their 40s and 50s 60-80% equities with 20-40% in bonds, those approaching retirement 40-60%, and retirees 20-50%. Diversification means holding 100 stocks rather than 10, and holding globally rather than only at home, since the UK is about 4% of world market capitalisation. Equity returns carry a standard deviation of around 15% a year, so a single year can land anywhere between -25% and +35% while the 20-year average stays a steadier 6-9%. Selling into a downturn is what converts that volatility into a permanent loss.