Glossary
Plain-English definitions for every term used on this site, written specifically for how this calculator applies them. For the full math behind IRR, DRIP, and adjusted close, see the How It Works page.
Dollar-cost averaging (DCA)
Investing a fixed amount on a regular schedule, weekly, monthly, quarterly, or annually, regardless of the price on any given day. Because the amount is fixed, you buy more shares when prices are down and fewer when they’re up, which smooths your average purchase cost over time. It’s a mechanical, unemotional way to invest rather than an attempt to time the market. This tool exists specifically to backtest DCA plans against real historical prices; see the simulation walkthrough for the exact mechanics.
DRIP (dividend reinvestment)
When a fund or stock pays a cash dividend, DRIP automatically uses that cash to buy more shares (including fractional shares) at that day’s price instead of holding it as cash. Those new shares then earn their own future dividends, which compounds over long periods. With DRIP off, dividend cash sits alongside your position instead of buying more shares. Full mechanics are on the DRIP section of How It Works.
IRR (internal rate of return)
The single constant annual growth rate that would produce your exact final balance, given precisely when each contribution went in. IRR is the “Ann. Return” figure this tool reports, because it’s the correct way to annualize a return when money enters at different times, unlike CAGR, which assumes a single lump sum. See the full IRR derivation including the Newton-Raphson solver used to compute it.
CAGR (compound annual growth rate)
The annualized growth rate you’d get from (final ÷ invested)^(1/years) − 1. CAGR is the right measure for a single lump-sum investment, but it’s misleading for a DCA plan because it ignores that your first dollar was invested far longer than your last one. This tool uses IRR instead for exactly that reason.
Adjusted close
The historical closing price after retroactively correcting for stock splits and dividend payouts, so a chart never shows a false price drop on split day or dividend day. Every calculation in this tool uses adjusted close rather than raw close, which is also why expense ratios don’t need to be subtracted separately, they’re already reflected in the price. Details on how this is handled.
Expense ratio
The annual fee a fund charges, expressed as a percentage of assets, to cover management and operating costs. It’s deducted continuously from the fund’s net asset value rather than billed separately, which is why it shows up as a small, constant drag on returns rather than a line-item charge. Broad-market index ETFs (like VOO or VTI) tend to run near the low end of the range; niche, leveraged, or actively managed funds tend to run higher.
Benchmark rate
A hypothetical fixed annual return you can add to a comparison alongside real tickers, for example, a steady 7% or a 4.5% high-yield savings rate. It’s computed with true discrete annual compounding and has no volatility, fees, or taxes, so it’s a reference line rather than a realistic investment. Useful for answering “did the market actually beat my minimum target?” See how the benchmark is computed.
Ex-dividend date
The date on which a stock or ETF starts trading without the value of its next dividend payment. If you own shares before this date, you receive the dividend; the price typically drops by roughly the dividend amount on this date, which is exactly what adjusted close corrects for.
Total return
The raw percentage gain across the entire holding period, calculated as (final value − total contributed) ÷ total contributed. It’s straightforward but doesn’t account for how long each dollar was invested, which is why this tool also reports annualized return (IRR) alongside it.
Inception date
The date a fund first started trading. If you request a longer backtest period than a fund has existed for, for example 20 years of history for a fund launched in 2014, the simulation automatically starts from the fund’s actual inception and flags the result, so a newer fund is never unfairly compared against a longer track record. See inception date handling.
Leveraged ETF
A fund designed to deliver a multiple (commonly 2x or 3x) of an index’s daily return, using derivatives and debt. The leverage resets daily, so returns over weeks or months can diverge significantly from simply multiplying the underlying index’s return, especially in volatile or sideways markets, an effect often called volatility drag. Compare TQQQ against QQQ to see this in a real backtest.