I’m sixteen years old and I want to build up a stable investment foundation. I’m not looking for financial advice, I’d just like to know how compounding interest works.
I’ve been looking at things like managed funds which say they offer 12% annual interest rate. If I was to reinvest every year I would experience exponential growth in say, 40 years. Is it possible for these managed funds to underperform and completely ruin my investment? I was also curious if things like index tracking funds and ETFs offered similar compounding possibilities?
In: Economics
You are mixing up terms. Interest rates are set payments for borrowing or lending money. Funds that invest money offer rates of return, but those are not guarantees—only historic track record.
They cannot offer compounding interest since they aren’t offering interest. But what most offer is dividend reinvestment, where any dividends earned get plowed into more shares or more money reinvested into the fund.
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