Compound interest eli5:
Hello,
So I am little confused, I know that compound interests is interests on interests. But how you achieve it? Say that I invest 100 dollars in a Roth IRA in a eft fund that pays 2% dividends, after a year it grows to 102 dollars(plus appreciation with is like 7%) so like after a year I “have” around 110 dollars and as years go on this cycle repeats? Is this what compounding is in ROTH Ira?
In: Economics
You don’t “achieve” it, as much as it just happens. Your Roth IRA will “reinvest” the “earned” money back into itself. That “reinvested” money is the bases for additional earnings, which is why your earnings grow. Using earnings to make more earnings is the “compound” of compound interest.
So long as you’re not taking money out of the Roth, your interest/earnings will continue to grow.
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