Last week, in order to demonstrate the power of compound interest most dramatically, I wrote about compounding at 100% per period. The huge numbers that result can really get one’s attention. Today let’s consider compound returns using rates that are very realistic. In doing so, we can think about the effect such compounding really has on your actual investments.

The number we are looking for is a best estimate of your actual return on investments going forward. What you really make on your overall portfolio will be your true compounding rate. It has become my custom to think about a 7% annual return, which correlates nicely with long-term historic returns of balanced portfolios.

As it would be imprudent for you to invest only in stocks, so it would be inaccurate to think about your money compounding at the historic rate of “stock only” investments. In truth, you will invest in a mixture of historically higher-returning stocks and historically safer (but lower-returning) bonds and other vehicles. Seven percent per year is a very solid, if slightly conservative, “guesstimate” for the return you might achieve going forward.

What will 7% do for you? If you remember the rule of 72, you know that a 7% interest rate will double your money in little more than 10 years and almost quadruple it in 20. Over a period of half a century, it can turn a relatively modest investment into a huge pile of money.

Consider as well, though, that costs or missed opportunities compound at the same rate. If some fund, or product, or investment advisor, is taking 3% when 1% would be fairer, what amount of money goes missing from your purse?

The math for a single year is very easy. If you start with $100,000 and suffer a leakage of 2%, you will be $2,000 to the worse at the end of the year. How bad is the loss, though, if the excessive 2% comes out every year for a decade? What about a period of 20 years? Many investment accounts, such as those dedicated to saving for retirement, remain in similar circumstances for 30 years or more. How much do compounding costs hurt you in such a situation?

The mathematics of compounding is very different from our usual work with numbers. Few and far between are the folks who can estimate compound interest in their heads. Go to the web and find a compounding calculator such as the one here at Investor.gov. Punch in the figures. Actually crunch the numbers – a habit that will serve you very well in all your investment endeavors. You may be surprised.

Here are a few answers to whet your appetite for getting out the old calculator and doing some figuring yourself. If you start with $100,000, add nothing to it, and it compounds for 30 years at 7%, you will end up with more than $750,000. If you can let it sit there for 50 years, though, it will grow to almost $3 million. On the other hand, if excessive fees or costs bring your returns down from 8% to 6% annually, your return on $100,000 over 30 years will be reduced from a little bit over $1 million down to a shade under $600,000.

The big lessons are these. The effects of compounding work mightily for an investor. On the other hand, the consequences of costs, fees, missed opportunities and trickery also compound. Trying to estimate compounding figures in your head is a mistake – get out the calculator and crunch the numbers. Finally, remember this: as a result of compounding, there is a lot more at stake than you may realize.