Question 1

How does compound interest work with dividends?

Accepted Answer

When you reinvest dividends, you buy more shares. Those new shares earn dividends too, which buy even more shares. This cycle — earning returns on your returns — is compound interest. Over decades, compounding can turn modest investments into substantial wealth.

Question 2

What's the rule of 72?

Accepted Answer

The Rule of 72 is a quick way to estimate how long it takes to double your money. Divide 72 by your annual return rate. For example, at 8% annual returns, your money doubles roughly every 9 years (72 / 8 = 9). With dividend reinvestment, this doubling accelerates over time.

Question 3

How much should I contribute monthly?

Accepted Answer

Any amount helps thanks to compounding. Even $100/month invested at 8% grows to over $150,000 in 20 years. The most important factors are starting early and being consistent. Increase contributions when you can, but don't let the perfect be the enemy of the good.

Question 4

What return rate should I use?

Accepted Answer

The S&P 500 has historically returned about 10% annually before inflation (7% after inflation). Dividend-focused portfolios typically yield 3-5% in dividends plus 4-6% in capital appreciation. A total return assumption of 7-9% is reasonable for long-term planning.

Question 5

Does this calculator account for inflation?

Accepted Answer

The calculator shows nominal returns by default. To see inflation-adjusted projections, subtract the expected inflation rate (typically 2-3%) from your growth rate. For example, use 5% instead of 8% to see results in today's dollars.

Question 6

What's the difference between simple and compound interest?

Accepted Answer

Simple interest is calculated only on your original investment. Compound interest is calculated on your original investment plus all accumulated interest. Over long periods, the difference is dramatic. $10,000 at 8% simple interest grows to $26,000 in 20 years. With compounding, it grows to $46,600.

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