For a long-run, diversified US stock portfolio, a reasonable input is about 10% as a nominal (before-inflation) return or about 7% as a real (after-inflation) return — then subtract whatever you pay in fund fees. The single number you type into an investment calculator is the most important assumption in the whole projection, and most people pick it badly. This guide shows where those figures come from, when to use the higher or lower one, and how to turn one guess into an honest range.
The two averages everyone quotes (and what they actually mean)
The S&P 500 has historically returned roughly 10% per year nominally over the long run, which works out to about 7% per year after inflation. Those are the two anchors. The gap between them is roughly the long-run inflation rate of about 3% a year, and choosing the wrong one is the most common way a projection ends up lying to you.
- Nominal return (~10%) answers "how many dollars will I have?" Use it when the question is a raw account balance on a future statement.
- Real return (~7%) answers "how much will those dollars actually buy?" Use it whenever the goal is spending power — retirement, a house, college — which is almost always.
Both numbers are long-run averages measured over many decades. They are not a promise for any single year, and they are not even reliable for any single decade. The market can return +25% one year and -20% the next; the average only emerges over long horizons. That is exactly why an investment calculator is different from a savings calculator, where a bank's APY is contractually fixed.
Why the same plan produces wildly different numbers
Watch what happens to one identical plan — a $10,000 starting balance plus $500 a month for 30 years — when only the return rate changes. You contribute $190,000 of your own money in every row; the rest is growth.
| Return rate | What it represents | Ending balance | Growth on $190,000 in |
|---|---|---|---|
| 10% | Nominal stock average | $1,328,618 | $1,138,618 |
| 8% | Conservative nominal | $854,537 | $664,537 |
| 7% | Real (after-inflation) average | $691,150 | $501,150 |
| 5% | Cautious real estimate | $460,807 | $270,807 |
The same dollars in, the same 30 years — and a swing from about $461,000 to $1.33 million depending on three percentage points. The 10% and 7% rows are not contradictory; they are the same outcome described in two currencies. The $1,328,618 nominal figure, deflated back to today's buying power at 3% inflation, lands near the $691,150 real figure. They are two views of one future.
Then subtract your fees — they come straight off the top
Every dollar you pay in fund fees is a dollar that never compounds. A fund's expense ratio is deducted from returns automatically, so a fund earning 7% gross with a 1.00% expense ratio hands you about 6% net. That sounds tiny. Over decades it is brutal.
Take the same $10,000 + $500/month for 30 years at a 7% gross return, and vary only the expense ratio:
| Expense ratio | Net return | Ending balance |
|---|---|---|
| 0.03% (broad index fund) | 6.97% | $686,829 |
| 0.50% (active-ish) | 6.50% | $623,007 |
| 1.00% (expensive fund) | 6.00% | $562,483 |
The difference between a 0.03% index fund and a 1.00% fund is about $124,000 — handed to a fund company for, on average, no better performance. The practical rule: type your gross return into the calculator, then knock off your blended expense ratio before you read the result. If you only hold low-cost index funds, the drag is rounding-error small; if you hold pricey active funds or pay a 1%-of-assets advisor on top, the drag is enormous.
How to pick your number, step by step
Don't reach for a single optimistic figure. Build it deliberately.
- Pick nominal or real first. Spending-power goal? Use real (~7%). Just want the future statement balance? Use nominal (~10%).
- Adjust for your actual mix. A 100% stock portfolio leans toward the full average; a 60/40 stock-and-bond mix earns less, so shade your number down a point or two.
- Subtract fees. Take off your blended expense ratio and any percentage-based advisor fee.
- Tilt conservative for short horizons. Under about 10 years, the long-run average is unreliable. Use a lower rate and lean on cash or bonds for money you need soon.
- Run three cases, not one. Always project a low, middle, and high rate so you see the range instead of a single false-precise figure.
A sanity check with the Rule of 72
The Rule of 72 gives a quick gut-check on any rate you choose: divide 72 by the return to estimate the years to double. At a 7% real return, money doubles in about 10 years (72 ÷ 7). At 10% nominal, it doubles in about 7 years (72 ÷ 10). If a projection implies your money doubling far faster than that, the return assumption is too aggressive and the output is fantasy.
Where to verify the historical averages
The 10%-nominal and 7%-real figures are long-run historical averages, not guarantees, and you should treat them as such. For an independent, ad-free primer on how market returns and compounding work, the U.S. Securities and Exchange Commission's Investor.gov is a trustworthy reference. To see how inflation quietly eats a nominal projection, run a future balance through the inflation calculator; to understand the compounding engine underneath, read what compound interest is.
Put your rate to work
Pick your nominal-or-real anchor, shade it for your asset mix, subtract fees, and run it three ways in the investment calculator. The honest answer to "what rate should I use?" is never one number — it's a conservative middle case plus a range you can live with.
Try it yourself
Run your own numbers in the free Investment Calculator — instant, private, no sign-up.
Open the Investment Calculator →Frequently asked questions
- What rate of return should I use in an investment calculator?
- Use about 10% for a nominal (before-inflation) stock projection or about 7% for a real (after-inflation) one, then subtract your fund fees. The 10% figure is the long-run nominal average for US stocks and the 7% figure is that same average after roughly 3% inflation. Both are long-run averages, not guarantees, so also run a lower and higher case.
- Should I use a nominal or real return rate?
- Use a real return (about 7%) whenever you care about spending power, such as retirement, a home, or college, because it already strips out inflation. Use a nominal return (about 10%) only when you want the raw dollar balance that will appear on a future statement. The two describe the same outcome in different currencies.
- Is 7% a realistic return for investments?
- Yes, about 7% is a realistic long-run real return for a diversified US stock portfolio, equal to the roughly 10% nominal average minus about 3% inflation. It is an after-inflation figure, so it reflects actual buying power. It is still a long-run average, and any single year or even decade can come in far higher or lower.
- How do fund fees affect my projection?
- Fees come straight off your return, so a fund earning 7% gross with a 1.00% expense ratio delivers about 6% net. On $10,000 plus $500 a month for 30 years, the difference between a 0.03% index fund and a 1.00% fund is about $124,000. Always subtract your blended expense ratio from the gross rate before reading the calculator's result.
- Why does a small change in the rate make such a big difference?
- Because returns compound, small rate differences multiply over time. The same $10,000 plus $500 a month for 30 years grows to about $460,807 at 5% but about $1,328,618 at 10% - nearly triple from a five-point gap. The longer the horizon, the more the chosen rate dominates the final number, which is why the rate is the most important input you pick.
- Should I use a lower return rate for short-term goals?
- Yes, use a lower rate for any goal under about ten years, because the long-run stock average is unreliable over short windows. A market drop right before you need the money can wreck a short-horizon plan. For near-term goals, lean on cash, CDs, or bonds and model them in a savings calculator rather than assuming 7% to 10% growth.
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