Methodology & Assumptions
At InvestingLab.com, our tools are designed to help users understand financial trade-offs, not to provide advice or predictions. Each calculator uses transparent assumptions and simplified financial models to simulate possible outcomes based on user-provided inputs.
This page explains how our simulations work, what assumptions are used, and their limitations.
Purpose of Our Tools
Our calculators are built to:
- Illustrate comparisons between financial choices
- Highlight long-term trade-offs and opportunity costs
- Help users test “what-if” scenarios in a controlled environment
They are educational simulations, not recommendations.
General Modeling Approach
Across all calculators, we follow these principles:
- User-driven inputs: Results depend entirely on the data you enter.
- Conservative defaults: Default assumptions are intentionally modest.
- Deterministic models: Calculations use fixed assumptions rather than predictions.
- Transparency over complexity: We prioritize clarity over overly complex formulas.
We do not attempt to forecast markets or predict individual outcomes.
Investment Return Assumptions
When investment growth is modeled:
- Returns are assumed to compound periodically (usually monthly or annually).
- Default return assumptions are conservative long-term averages, not short-term expectations.
- Volatility, drawdowns, and market timing effects are not included unless explicitly stated.
Actual market returns vary significantly and may be higher or lower than simulated results.
Debt & Interest Calculations
For debt-related simulations:
- Interest rates are assumed to remain constant for the duration of the model.
- Payments are applied on a regular schedule.
- Interest is calculated using standard amortization formulas.
Variable rates, refinancing, missed payments, or lender-specific terms are not modeled unless specified.
Tax Treatment (United States)
Some calculators include simplified US tax assumptions, such as:
- Marginal federal tax brackets
- Capital gains tax treatment (short-term vs long-term)
- Tax-advantaged accounts (e.g., retirement accounts)
Important limitations:
- State and local taxes may not be included
- Individual deductions, credits, and exceptions are not modeled
- Tax laws change over time and vary by individual
Tax assumptions are illustrative only, not personalized.
Inflation Assumptions
When inflation is included:
- A constant inflation rate is assumed
- Purchasing power is adjusted accordingly
Real-world inflation fluctuates and may differ significantly from modeled assumptions.
Scenario Comparisons
Many tools compare two or more financial paths. These comparisons are intended to show:
- Relative differences between choices
- Sensitivity to assumptions
- Trade-offs over time
They are not rankings and should not be interpreted as recommendations.
What Our Tools Do NOT Do
Our calculators do not:
- Provide personalized financial advice
- Predict market behavior
- Account for every possible variable
- Replace professional financial planning
- Guarantee outcomes
User Responsibility
By using our tools, you acknowledge that:
- Results are hypothetical
- Outcomes depend on assumptions
- You are responsible for verifying results
- You should consult qualified professionals before acting
Continuous Improvement
We regularly review and refine our models to improve clarity and accuracy. Assumptions may be updated to reflect changes in financial norms, tax structures, or best practices.
Questions or Feedback
If you have questions about our methodology or suggestions for improvement, please contact us through the Website.