Understanding Compounding Interest

Compounding interest is one of the irrefutable financial truths.  With compounding interest, your principle earns interest every year and your earned interest also earns interest. The power of compounding rest on uninterrupted compounding interest and over time, the growth is exponential. Two actions kill the compounding curve; spending the money and stock market corrections.  

Your money does not compound inside of a fluctuating market account.  Accounts such as your IRA, 401k, Brokerage, and/or 529s are not compounding unless it is invested in a guaranteed, fixed product, continually earning interest. If the market declines and your account losses value, you just killed the compounding. 

The types of accounts and products you invest in are vitally important to the growth of your principle and contributions. Understanding how money truly works will better equip you to make good financial decisions about your wealth and future.