What expected return can and cannot show
A portfolio's one-period expected return is the allocation-weighted mean of its component return expectations. The mathematical average is useful for comparing assumptions, but it does not specify the order of future returns, the amount of a possible loss or the ending wealth an investor will actually receive.
This calculator contains 12 editable asset-class examples and four allocation presets. They have no stated historical sample and should not be treated as measured averages. The names Conservative, Moderate, Aggressive and All-Stock describe sample allocations only. None is a recommendation for a particular age or investment objective.
Build a reproducible scenario
- Enter an initial amount, fixed monthly contribution, whole-year horizon and annual inflation assumption. Amounts are shown in USD. Contributions arrive at the end of each month.
- Set allocations to total 100%. Each asset class can appear once. Changing an asset class loads its sample return and standard deviation; review those values before calculating.
- Read the base, higher-rate and lower-rate balances. These hold their annual return constant throughout the horizon. They do not simulate random returns or show percentile outcomes.
- Use the year-by-year table to distinguish money contributed from nominal gains and inflation-adjusted purchasing power. Changing inputs clears the old output; Clear Results hides the output while keeping the inputs.
Weighted return and the missing correlation terms
Weighted return = sum of (allocation / 100 × asset return). With hypothetical 60% stocks at 10% and 40% bonds at 4%, the result is 7.6%. This is a one-period weighted assumption, not a measured compound annual growth rate.
The simplified standard deviation is √sum(w² × σ²), which assumes zero correlation between asset classes. A full portfolio variance includes covariance terms for pairs of assets. Actual positive correlations increase risk relative to this zero-correlation model; negative correlations can reduce it.
For example, two hypothetical assets each with 20% standard deviation at equal weights produce 14.14% under zero correlation. If their correlation were 1, the portfolio standard deviation would instead be 20%. Splitting one asset into two rows must not create artificial diversification; duplicate asset classes are therefore disallowed.
The higher and lower scenarios use weighted return plus or minus this simplified standard deviation. Repeating either annual rate for decades is a sensitivity assumption, not a one-standard-deviation range for terminal wealth. A lower rate at or below -100% is rejected; losses are not silently capped.
Compounding and purchasing power
For the deterministic projection, each scenario rate is treated as an effective annual growth assumption. Its monthly equivalent is (1 + annual rate)^(1/12) - 1. Each month, the previous balance grows and then the contribution is added. This conversion avoids treating a 12% effective annual assumption as 1% per month, which would compound to more than 12%.
The real balance equals nominal balance divided by (1 + annual inflation)^years. Hypothetically, 1,000 growing at 10% for one year with no contributions becomes 1,100. At 5% inflation its starting-date purchasing power is 1,047.62. At 3% inflation, a nominal 1 million received in 20 years is worth about 553,676 in starting-date dollars.
The illustrative Sharpe value uses a fixed 4.5% benchmark and the simplified standard deviation. It is not calculated from a return history or a current Treasury yield. A zero denominator is unavailable, not zero. Its interpretation changes with the assumptions and cannot determine whether a portfolio is suitable.
What remains outside the model
No market data is fetched for these calculations. Fees, taxes, withdrawals, changes in allocation, changing correlations and the order of returns are excluded. Volatility does not guarantee compensation, and diversification does not eliminate loss. A constant-rate balance is not an estimate of a median outcome or a promise that a financial goal will be met.
Method references: William Sharpe's definition and limitations of the Sharpe ratio and Investor.gov's contribution and compounding inputs. See also Investor.gov on allocation and diversification. These references explain concepts; they do not endorse this page's illustrative preset numbers. Reviewed October 21, 2026.