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
A good guideline in the investing world is that 10% returns will double your money every 7 years.
Not ten years, like makes sense on the face of it, that’s the beauty of the compounding. Every 10% gain gets folding into the total every year, so you get the doubling much faster than if you were just taking those 10% gains and setting them off to the side somewhere.
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