I’ve gotten as far as buying $1000 worth of XEQT in TFSA do I just leave it for 30 years now?
In: Economics
There are some good comments already, but let me provide a different perspective.
Perhaps obviously, there are two parts that make up compound interest: “compound” and “interest”.
Interest is a way in which the owner of capital is paid for providing their capital. It’s a predetermined cash payment based on a percentage of the value of capital the owner holds.
Compound refers to the fact that the “baseline” amount of money that you have is updated regularly (and generally automatically) to include new money you recently received from your investment. The result is that your money grows exponentially.
Now, when people say “I want compound interest” it’s often because they’ve been warned of products that do not compound, or at least do not compound automatically, so require lots of impractical manual work. What they really mean is “I want exponential growth”.
Stocks, or funds (collections of stocks) like ETFs do also grow in value exponentially. However it’s incorrect to say that they offer “compound interest” because stock returns come in the form of dividends, appreciation, or return or capital (not interest). But anything whose growth is measured in percent that has a regularly updating baseline value is growing exponentially. This is usually what people want.
In summary: XEQT does not offer compound interest, but it does offer (the likely prospect of long-term) exponential growth, which might be what you want.
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