Suppose you put €5,000 into a global index fund and then add €300 every month for 30 years. In the calculator that is Vanguard FTSE All-World with 0.14% ongoing costs, at a return of 6% a year before costs. The 6% is an illustrative assumption, not a forecast. The question: what difference does it make to raise the monthly amount by 2% each year, for example because your income grows?
At 2% a year, €300 becomes €306 a month in the second year and €532.75 in the thirtieth. The calculator raises the contribution once a year.
Result after 30 years
| Yearly increase | 0% | 2% |
|---|---|---|
| Total deposited | €113,000 | €151,045 |
| Gross balance | €331,468 | €404,036 |
| Net balance | €322,290 | €393,622 |
| Fee erosion | €9,178 | €10,414 |
| Net gain | €209,290 | €242,577 |
| Fees as % of gain | 4.2% | 4.12% |
With the yearly increase you deposit €151,045 in total instead of €113,000, and there is about €393,622 after costs instead of €322,290. Fee erosion rises too, from about €9,178 to €10,414, because more money is invested. As a share of the gross gain it stays almost the same: 4.2% and 4.12%.
Investing involves risk of loss. The figures presented by this calculator are for illustrative purposes only and do not constitute financial advice. Past performance does not guarantee future results.
Why an increase counts
A fixed monthly amount is worth a little less each year because of inflation. A yearly increase keeps the contribution more in step with prices and income. The extra money does arrive later than the first contributions, so it has fewer years to grow. How much you can and want to invest depends on your own situation; this example only shows how the sums work.
Not included: tax (such as the Dutch Box 3), transaction costs, dividend withholding tax and inflation. Amounts are rounded to whole euros.
How the balance builds up
Each year the monthly amount is raised by 2%, so the deposits grow faster than in a fixed plan. The table shows every five years.
| Year | Deposited | Balance after costs | Growth |
|---|---|---|---|
| 5 | €23,735 | €28,354 | €4,620 |
| 10 | €44,419 | €61,891 | €17,472 |
| 15 | €67,256 | €109,302 | €42,045 |
| 20 | €92,470 | €175,555 | €83,085 |
| 25 | €120,309 | €267,335 | €147,026 |
| 30 | €151,045 | €393,622 | €242,577 |
In year 13 the balance grows by more over the year than the €4,566 you deposit that year, for the first time. After 30 years 62% of the €393,622 is growth and 38% is your own deposit. The growth comes late because it needs a large balance to build on.
What starting five years later changes
If you started five years later and added the same amount for 25 years, you would have €267,335 instead of €393,622, with €120,309 deposited instead of €151,045. Starting later leaves out €30,736 of deposits but lowers the final balance by €126,287, because the missing deposits are the ones that would have had the longest to grow.
Questions about this example
Why is the final balance larger than what I deposited?
Of the €393,622, €151,045 is your own money and €242,577 is growth. Growth earns growth: each month the return is added to a balance that already contains earlier returns. That is why the share of growth rises with the horizon.
What does the yearly increase add compared with a fixed €300?
With a fixed €300 a month for 30 years the balance would be €322,290 instead of €393,622. The difference is €71,332.
What if markets fall along the way?
In this example the return is the same every month, which never happens. The market crash simulator shows what a fall does to a balance.
Terms on this page
- Regular investing
- Inflation and purchasing power
- Fee erosion
Source of the figures: the ETF calculator's own calculation engine, under the assumptions in the text. How the calculator works