Question 1

What is compounding in simple terms?

Accepted Answer

Compounding is when the returns on your money start earning returns of their own. Each year's growth gets added to the base, so the next year's growth is calculated on a slightly larger amount.

Question 2

Why does time horizon matter so much for compounding?

Accepted Answer

Compounding speeds up the longer money stays invested, because gains keep stacking on earlier gains. A longer time horizon gives that stacking more years to build, which is why the later years tend to add the most.

Question 3

Does compounding guarantee my money will grow?

Accepted Answer

No. Compounding describes how growth stacks when returns are positive, but real returns vary and can be negative. Losses and fees compound against you the same way gains compound for you.