Discover the power of compound interest. See how your investments can grow exponentially over time with regular contributions and compounding.
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Power of compounding
Your Money Growing
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Rule of 72: Divide 72 by your interest rate to estimate how long it takes to double your money.
Start Early: Investing $100/month at age 25 vs age 35 can result in hundreds of thousands more at retirement.
Regular Contributions: Consistent monthly investments outperform lump-sum investments over time.
Higher Frequency: More frequent compounding (monthly vs annually) can significantly increase returns.
Tax-Advantaged Accounts: Use 401(k)s, IRAs, and other tax-advantaged accounts to maximize compound growth.
Dollar-Cost Averaging: Regular investments reduce the impact of market volatility on your portfolio.
$100/month at 7% for 18 years:
$21,600 invested
grows to $55,000+
$300/month at 6% for 8 years:
$28,800 invested
becomes $42,000+
$250/month at 8% for 35 years:
$105,000 invested
grows to $500,000+
Time Horizon: The longer your investment period, the more compound interest works in your favor.
Market Timing: Trying to time the market usually hurts returns. Stay invested through ups and downs.
Rebalancing: Periodically adjust your portfolio to maintain your desired risk level.
Emergency Fund: Keep 3-6 months of expenses in cash before investing aggressively.
Diversification: Don't put all eggs in one basket. Spread investments across asset classes.
Asset Allocation: Balance risk and reward based on your age and risk tolerance.
Regular Reviews: Monitor performance but avoid frequent trading that can hurt returns.
Inflation Protection: Consider assets that historically outpace inflation over time.
Simple interest is calculated only on the principal amount. Compound interest is calculated on both principal and accumulated interest from previous periods, leading to exponential growth.
For long-term investments, quarterly or annual reviews are usually sufficient. Daily checking can lead to emotional decision-making. Focus on your long-term goals rather than short-term fluctuations.
Index funds track market indices and have low fees. They're great for most investors since they historically outperform most actively managed funds over long periods due to lower costs and diversification.
Taxes can significantly reduce compounding. Use tax-advantaged accounts like 401(k)s, IRAs, or Roth IRAs. Capital gains taxes apply when you sell investments that have appreciated in value.
Employer-sponsored retirement plan with tax advantages.
Individual retirement account with tax deductions.
After-tax contributions with tax-free growth.
Education savings with tax advantages.
Health savings account with triple tax benefits.
Taxable investment account with full flexibility.