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
No managed fund can guarantee 12% annual returns.
But “compound” interest is the interest you make on interest.
If you invest $100 and get a 10% annual return, you would have $110 at the end of the year. If you did not put in another dollar and waited another year you would have $121 next year.
That’s another $10 in interest from the original $100 and $1 from the $10 in interest you earned last year.
Gaining interest on interest is how you get rich
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