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One of the hardest parts of breaking into the investing world is understanding investing jargon. Investors and personal finance buffs love to use these fancy terms, and you’ll have the hang of it in no time. These big investing terms encapsulate simple concepts, and we’re here to break it all down for you.
Compound Interest is a key benefit to investing in the stock market and aids in faster investment growth.
So, what is compound interest? And how do you get it?
Compound interest is the interest you earn on interest. For example, let’s say you invested $100 and you earn 5% interest each year. After the first year, you would have $105. After you have accrued interest on your investment, you’ll earn interest on the 5% interest you already have in addition to interest on your initial $100 investment, so by the end of the second year, you will have $110.25.
In short, your interest earns interest; this will significantly impact your profits.
Seeing the magic of compound interest will take time, so it is essential to start investing early.