Question 1

What is compound interest?

Accepted Answer

Compound interest is interest earned on both the initial principal and the accumulated interest from previous periods. Unlike simple interest (which only earns on the principal), compound interest grows exponentially over time. Formula: Future Value = Principal × (1 + Rate)^Years. Example: €10,000 at 7% annual return for 30 years = €76,123 (compound) vs €31,000 (simple). Einstein reportedly called compound interest 'the eighth wonder of the world' — the longer you invest, the more powerful the compounding effect.

Question 2

How much do I need to invest to become a millionaire?

Accepted Answer

At a 7% real annual return (historical stock market after inflation): investing €500/month for 30 years = approximately €567,000. Investing €1,000/month for 25 years = approximately €810,000. To reach €1,000,000: invest €1,400/month for 25 years at 7% return. Starting earlier is far more powerful than investing more — an extra 5 years doubles the impact. Use StrategyIndex.io's Compound Interest Calculator to model your specific scenario with custom amounts, rates, and time periods.

Question 3

How does inflation affect compound interest calculations?

Accepted Answer

Inflation reduces the real purchasing power of your investment returns. If your portfolio grows at 7% but inflation is 3%, your real return is approximately 4%. For long-term FIRE planning, always use real (inflation-adjusted) returns rather than nominal returns. StrategyIndex.io's Compound Interest Calculator lets you input an inflation rate separately from your investment return, showing you both the nominal future value and the real (today's purchasing power) value of your portfolio.

Compound Interest Calculator

Investment Growth Over Time

Annual Breakdown Table

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