Ten months ago, I opened a Roth IRA with an initial principal of $1,000, invested in one of those "Target Date" retirement mutual funds. I also set up $100 automatic monthly contributions.

The account is currently valued at $1,926, being $1,900 principal from both my initial and monthly contributions, and the extra $26 because the mutual fund's share price has risen. It has also increased by another 8 cents because the fund has paid a $0.01 interest dividend each month, starting from the second month.

And yet, every basic "IRA Calculator" I have used says that after 9 months of contributing $100 per month, a Roth IRA that started at $1000 should be worth $2036 because of the "interest". $136 of interest. And yet I have accumulated a whopping 8 cents of interest in 10 months. What am I missing?

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    What fees does your target date fund charge you? I can't believe nobody has mentioned/asked about fees yet. Commissions, ongoing fund management fees, etc. can harm your returns significantly -- it is wise to be aware of them. Commented Oct 19, 2017 at 17:19
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    It looks like your calculator assumed 11% rate of return, or assumed a 3% rate of return and made a $100 contribution on day 0 (i.e. a 10th contribution to your 9). With 9 months of history, you can check the validity of that assumption. What is the series of mutual fund share prices on the monthly contribution date? How does the variability in this series impact your decision-making?
    – user662852
    Commented Oct 19, 2017 at 18:27
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    Year to date, the S&P is up 16.28%. Even with cash at 0%, a balanced portfolio should have seen some fraction of this remarkably decent return. I've never has much respect for target date funds. This only reinforces my beliefs. Commented Oct 19, 2017 at 22:32
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    @WakeDemons3 Check you policy to see if there is any "front-end loading" of charges. It's not uncommon (in my limited experience) for "retirement funds" to take most of their charges/commission in the first year or two, reducing any gains, and often making them uneconomic to cash-in early. Only after a few years can they really start to "grow".
    – TripeHound
    Commented Oct 20, 2017 at 8:29
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    @jamesqf - his account is up $26, less than 1.5%. When I look at my own calculations, I don't reject an online calculator for using the word 'interest' vs 'return'. In many cases, it's important, to the OP, it's a matter of semantics. The answers have already made any distinction worth noting. "OP is up less than 2% in a year that's up 16%+" is what I focused on. Commented Oct 20, 2017 at 10:31

4 Answers 4


The term 'interest' tends to be used loosely when discussing valuation of stocks. Especially when referring to IRAs which are generally the purvey of common-folk who aren't in the finance industry. Often it is used colloquially to include:

  1. The increase in the value of the stock.
  2. Any dividends paid by the stock.

Using this definition (which is what I'm guessing your IRA Calculator is doing), your stock would have increased in value by a total of $26 over the course of 10 months. Still not terribly good (only a couple percent increase), but certainly not a couple cents.

  • I guess my point is this: In 10 months, my IRA has only increased in value by 26.08 cents beyond my own contributions. Seems mighty low for a historic market year. And where is this fabled "compound interest"? Commented Oct 19, 2017 at 16:31
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    @WakeDemons3 "Compound interest" is the concept that the $26.08 return you had this year, will itself earn you money next year. Over 1 year, compound interest is effectively zero. But earning 7% return annually over 10 years doubles your money (instead of earning you an extra 70%, like you would expect). Compounding is a function of your return + time. Commented Oct 19, 2017 at 16:34
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    @WakeDemons3 What is the target date for your retirement fund? If it's close (say 2020, 2025 or maybe even 2030), then the fund will consist of a larger portion of bonds to stocks, which are less volatile (more stable), but typically return less over the long term. If you're in a 2040+ fund, I too would expect a larger return over the last 10 months, maybe consider shopping around a little more.
    – Andy
    Commented Oct 19, 2017 at 17:06
  • I also noticed suspiciously low performance in my target fund given what a great year this was and moved my funds out of the default target fund. Of course, now it's my responsibility to shift them into lower risk funds later. Commented Oct 19, 2017 at 17:10

There are a couple of misconceptions I think are present here:

Firstly, when people say "interest", usually that implies a lower-risk investment, like a government bond or a money market fund. Some interest-earning investments can be higher risk (like junk bonds offered by near-bankrupt companies), but for the most part, stocks are higher risk. With higher risk comes higher reward, but obviously also the chance for a bad year. A "bad year" can mean your fund actually goes down in value, because the companies you are invested in do poorly. So calling all value increases "interest" is not the correct way to think about things.

Secondly, remember that "Roth IRA fund" doesn't really tell you what's "inside" it. You could set up your fund to include only low-risk interest earning investments, or higher risk foreign stocks. From what you've said, your fund is a "target retirement date"-type fund. This typically means that it is a mix of stocks and bonds, weighted higher to bonds if you are older (on the theory of minimizing risk near retirement), and higher to stocks if you are younger (on the theory of accepting risk for higher average returns when you have time to overcome losses).

What this means is that assuming you're young and the fund you have is typical, you probably have ~50%+ of your money invested in stocks. Stocks don't pay interest, they give you value in two ways: they pay you dividends, and the companies that they are a share of increase in value (remember that a stock is literally a small % ownership of the company). So the value increase you see as the increase due to the increase in the mutual fund's share price, is part of the total "interest" amount you were expecting.

Finally, if you are reading about "standard growth" of an account using a given amount of contributions, someone somewhere is making an assumption about how much "growth" actually happens. Either you entered a number in the calculator ("How much do you expect growth to be per year?") or it made an assumption by default (probably something like 7% growth per year - I haven't checked the math on your number to see what the growth rate they used was). These types of assumptions can be helpful for general retirement planning, but they are not "rules" that your investments are required by law to follow. If you invest in something with risk, your return may be less than expected.

  • When I entered the growth, I used the real life average annual return of the actual fund I'm invested in. No assumptions or guesses. Commented Oct 19, 2017 at 16:28
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    @WakeDemons3 Yes, the average historical return is an assumption about future returns. These things are not like clockwork - there is risk involved, especially as you mention in a comment that your fund is 90% stocks. Commented Oct 19, 2017 at 16:32
  • Taking into account the historic market year, the assumption can only be low, if anything. Commented Oct 19, 2017 at 16:34
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    @WakeDemons3 It seems your fund did poorly, relative to the overall market return this year. That's a part of risk - your mutual fund invested in things that didn't do well. Not everyone has the same return. Commented Oct 19, 2017 at 16:35
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    The common rule of thumb for annual stock growth in a developed country is around 7-10%, (10% usually used for pre-inflation values, 7% used used after accounting for inflation). However that "7% average" is made of years going 20%+, countered by years going 10%-, and everything in between. Commented Oct 19, 2017 at 16:53

Terminology aside. Your gains for this year in a mutual fund do seem low. These are things that can be quickly, and precisely answered through a conversation with your broker.

You can request info on the performance of the fund you are invested in from the broker. They are required to disclose this information to you.

They can give you the performance of the fund overall, as well as break down for you the specific stocks and bonds that make up the fund, and how they are performing.

Talk about what kind of fund it is. If your projected retirement date is far in the future your fund should probably be on the aggressive side. Ask what the historic average is for the fund you're in. Ask about more aggressive funds, or less if you prefer a lower average but more stable performance. Your broker should be able to adequately, and in most cases accurately, set your expectation.

Also ask about fees. Good brokerages charge reasonable fees, that are typically based on the gains the fund makes, not your total investment. Make sure you understand what you are paying.

Even without knowing the management fees, your growth this year should be of concern. It is exceptionally low, in a year that showed good gains in many market sectors. Speak with your broker and decide if you will stick with this fund or have your IRA invest in a different fund.

Finally JW8 makes a great point, in that your fund may perform well or poorly over any given short term, but long term your average should fall within the expected range for the type of fund you're invested in (though, not guaranteed).

MOST importantly, actually talk to your broker. Get real answers, since they are as easy to come by as posting on stack.


Unfortunately for investors, returns for equity-based investments are not linear - you'll see (semi-random) rises and dips as you look at the charted per-share price.

Without knowing what the investments are in the target date retirement fund that you've invested in, you could see a wide range of returns (including losses!) for any given period of time. However, over the long term (usually 10+ years), you'll see the "average" return for your fund as your gains and losses accumulate/compound over that period.

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