Simple vs compound growth
| Feature | Simple | Compound |
|---|---|---|
| Return base | Original principal | Principal + accumulated growth |
| As time increases | Closer to linear growth | Growth curve can accelerate |
| Reinvestment | Not assumed | Assumed |
| Typical use | Basic comparison | Savings/investment projections |
Understand the formula
FV = P × (1 + r/n)^(n×t)P is starting principal, r is annual rate, n is compounding frequency per year, and t is years. Regular contributions require an expanded calculation because each deposit has a different time to grow.
Why time matters as much as the rate
At the same assumed 8% return, keeping Tk 100,000 invested for five years versus twenty years creates more than a simple four-times-time effect because accumulated growth can itself generate growth in later years.
How monthly contributions change the picture
New principal every month
Each monthly deposit gets its own time to grow.
Early deposits get more time
Deposits made earlier usually receive more compounding periods.
Increasing contributions matters
Increasing monthly savings can accelerate a goal without relying on a higher return assumption.
Use realistic assumptions
Overly high return assumptions can exaggerate future value.
A better way to compare scenarios
- 1Base scenario
Use current savings, a realistic monthly contribution and a conservative assumed return.
- 2Contribution scenario
Keep the return fixed and raise monthly contributions by 10–20%.
- 3Time scenario
Keep contributions fixed and extend the horizon by 3–5 years.
- 4Lower-return stress test
Lower the assumed return and see whether the plan still works.