How it works
The same contribution plan under two return assumptions reveals what a point of return is worth over time. The engine compounds both options identically — same starting balance, same monthly contribution, same horizon — varying only the rate, and reports the two future values with the gap as the headline. The result is always striking: on $20,000 plus $500 monthly over 20 years, the 8% option ends roughly $130,000 ahead of the 5% option — a point of return buys a six-figure difference at the same monthly sacrifice. That gap is the real conversation about asset allocation: the extra 3 points of expected return are not free — they come with volatility the 5% option does not carry — and the tool makes the prize visible so the risk can be weighed honestly. Keep the horizon honest: the difference is small over five years and enormous over thirty, which is precisely why long horizons are where equities earn their volatility.
Formula
FV(r) = same contribution plan compounded at rate r | Difference = FV(B) - FV(A)
Tips
- The difference line is the cost of being too conservative — and the return of being too aggressive is its mirror.
- Run it at 3% as the bad case: can the plan survive that outcome?
- Same contributions, same horizon — the only variable is the rate, which is the point.
- Use after-fee returns: expense ratios are silently subtracted from whatever line you're looking at.
Frequently asked questions
- Why does a small return difference become so large?
- Compounding multiplies the gap: the higher rate earns on a larger base every year, and the delta compounds too. Over 30 years, the difference between 5% and 8% is roughly 2.5 times the contributions — the tool makes the arithmetic visible on your own numbers.
- Which return should I use for Option A and B?
- Common planning pairs: 5% for bond-heavy portfolios, 7-9% for stock-heavy, 3% for cash. The engine's job is showing the consequence of the choice, not making it for you — the gap between options is the honest price of the risk difference.
- Are higher-return options always better?
- No — higher expected returns carry higher volatility and drawdown risk, and the actual outcome is a path, not the expected value. The tool shows what the higher option is worth if realised; the decision also weighs whether you can stay invested through a 40% drawdown. That is a question no calculator can answer.
- Does this model fees and taxes?
- No — returns are gross. Expense ratios reduce them silently (a 0.5% fee on an 8% return is really 7.5%), and taxes on growth matter in taxable accounts. For a fair comparison, subtract your fee spread from each option's rate before running it.