I recently opened one and understand I can put money in all year up to $6000. I understand I can buy stocks, mutual funds, and ETFs. But how does it grow? How do the models show exponential growth?
In: 7
The stock market as a whole, over long periods of time, goes up. That’s just its nature. It grows exponentially because it goes up a few percent points every year. Let’s say you invest $1,000 and it grows 10% every year for five years. THAT’S NOT +$100 EVERY YEAR. That’s $1,000 -> $1,100 (+100) -> $1,210 (+110) -> $1,331 (+121) -> $1,464.10 (+133.10) -> $1,610.51 (+146.41).
The way investments work in whatever investment account (regular, ROTH IRA, traditional IRA, 401k, etcetera) is the same, what differs is taxes, contribution limits, withdrawals, etcetera.
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