Index fund calculator

Project what a low-cost index fund grows to over a long horizon, net of the expense ratio. Then see the two things a straight-line projection hides: the order your returns arrive in, and the gap between the average and today's dollars.

How the math works

The projection is the standard future-value formula: a starting balance that compounds on its own, plus a stream of monthly contributions treated as an ordinary annuity that compounds alongside it.

Here P is your starting balance, PMT the monthly contribution, i the monthly rate (the annual return divided by 12), and n the number of months. The expense ratio comes out of the return before compounding — a 0.03% fund earns your entered rate minus 0.03% every year, and that small subtraction compounds too. The "in today's dollars" figure discounts the final balance back by your inflation rate, so a number four decades out is expressed in money you can price today.

One thing to hold onto: this is a straight line drawn at a constant rate. A projection that earns 10.2% every single year describes a market that has never existed. The rest of this page is about the distance between that line and the path your money actually takes.

Worked example

Take a 25-year-old putting $500 a month into a broad total-market index fund charging a 0.03% expense ratio — the figure the largest low-cost providers charge — and leaving it alone until age 65. That's 40 years of contributions.

At the S&P 500's long-run average nominal return of 10.2%, the calculator projects a balance of $3,330,192. Of that, $240,000 is money you put in; the other $3,090,192 is growth. Discounted back at the post-WWII inflation average of 3.3%, that pot is worth $908,775 in today's purchasing power — still a large number, and a more honest one than the headline.

Now hold everything constant and swap the 0.03% index fund for the average actively managed fund at 0.66%. Same contributions, same market, same 40 years. The balance lands at $2,751,065. The difference — $579,127 — is what the higher fee quietly removes from your result. On the same money.

When this calculator is wrong

Every calculator on this topic, including this one, draws a smooth line. Real markets don't move in smooth lines, and the difference isn't cosmetic. Here's where the straight line misleads.

• The average is the one outcome you almost certainly won't get. The 10.2% long-run figure is an average assembled from booms, crashes, and flat decades. No 40-year stretch delivered it in a straight line, and yours won't either. Treat the projection as the midpoint of a wide range, not a forecast of a specific number.
• Sequence of returns matters once you're contributing — and not the way retirement articles warn. For a lump sum left alone, the order of returns changes nothing; the same set of yearly returns multiplies to the same result however you shuffle them. But once you're adding money each month, order decides the outcome. A crash early, while your balance is small and your contributions are buying cheap shares, followed by a recovery late, when the balance is large, beats the reverse. The scary sequence-risk story belongs to retirees drawing money down, not to a saver still paying in.
• The return you enter is history, not a promise. 10.2% is the nominal long-run past average; the real, inflation-adjusted version is closer to 7.0%. The future is under no obligation to repeat either one, and the calculator can't tell the difference between a rate you researched and a rate you wished for.
• It assumes you never flinch. The math only holds if you keep contributing through the crashes it silently averages over. The single most expensive move an index investor makes isn't paying a fee — it's selling during the downturn the projection glossed past in a straight line.

What to do with the result

If the projected number looks good, the first thing to check isn't the number — it's the expense ratio you entered. Broad-market index funds are widely available at 0.03% to 0.10%. The average actively managed U.S. equity fund charges 0.66%, and over a long horizon that gap runs into six figures on an ordinary contribution stream, as the worked example shows. In U.S. large-cap index investing, an expense ratio above 0.50% almost never justifies itself; the exception is a genuinely less-efficient market like small-cap value or distressed debt, where active management has a stronger case. For a plain S&P 500 or total-market fund, the case is essentially nonexistent — check the ratio, and if it's high, move the money to a cheaper fund holding the same index.

If the number looks small, the lever that moves it most over a long horizon is the contribution and the years, not the last decimal of the return. You control the first two. You control none of the third.

Common questions

What return should I use for an index fund?

For a broad U.S. stock index, the long-run average has been about 10.2% nominal and 7.0% after inflation. Use the nominal figure if you're also modeling inflation separately (as the "today's dollars" line here does); use the real figure if you want the answer already in today's money. Either way it's a historical average, not a guarantee.

Does the expense ratio really matter if it's under 1%?

Yes, over a long horizon. The gap between a 0.03% index fund and a 0.66% active fund, on $500 a month for 40 years, comes to $579,127 in the worked example above. A fee that sounds like a rounding error compounds into a house.

Is an index fund the same as an ETF?

For this math, close enough. An index mutual fund and an index ETF tracking the same benchmark hold the same stocks and post similar expense ratios. The differences — how you buy them, minimum investments, intraday trading — don't change the compounding, so this calculator applies to both.

Why does an early crash help me if I'm still investing?

Because your monthly contributions buy more shares when prices are low. A downturn early in your saving years, while your balance is small, lets years of contributions accumulate cheap shares that a later recovery lifts. The same downturn late, when your balance is large and your remaining contributions are few, does far more damage. Order matters, and it favors the early saver who keeps buying.

Should I invest a lump sum all at once or spread it out?

Historically, investing a lump sum immediately beat spreading it in over 12 months about two-thirds of the time, because markets rise more often than they fall. That's a different question from the monthly-contribution math here — the dollar-cost averaging calculator runs it directly.