Capital created by the flywheel
Who supplies the new capital each year?
Annual crossover uses retained, after-tax gains: the returns that actually become new capital.
How this model works
Each year starts with opening capital B. Gross gain = B × nominal return. Tax = max(gross gain, 0) × tax rate. Net gain = gross gain − tax. Positive net gains are split between reinvestment and withdrawn cash; losses reduce capital in full. Closing capital = opening capital + retained gain + annual contributions.
- Annual crossover: first year with positive retained gains ≥ that year's contributions.
- Cumulative crossover: first year retained investment gains > lifetime contributions. Lifetime contributions include initial capital plus all subsequent payments. Retained gains = closing capital − lifetime contributions. Withdrawn gains are excluded from this capital-formation test.
- Real wealth: closing invested capital ÷ (1 + inflation)year. This is purchasing power in today's money; contributions and gains elsewhere remain nominal.
- Tax drag: a generic annual deduction from positive gains, paid from the portfolio. No loss credits, deferred taxation, allowances or jurisdiction-specific rules. Tax is applied before reinvestment.
- Withdrawn cash: tracked separately, earns no further returns and is excluded from invested wealth. The default retains 100% of gains so cash flow becomes recursive capital.
Constant returns and inflation are illustrations, not forecasts. No fees are included. Crossover marks the first qualifying year within the selected timeline; zero gain versus zero contributions is not treated as a crossover.
Year-by-year audit
The audit includes year 0. Highlighted rows mark either crossover. Scenario saving uses this browser's local storage.
| Year | Opening | Contributions | Gross gains | Tax | Net gains | Retained gains | Withdrawn | Closing capital | Lifetime contributions | Cumulative retained gains | Cumulative withdrawn | Real wealth | Milestone |
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