Question 1

What is compound interest?

Accepted Answer

Compound interest is interest calculated on both the initial principal and the accumulated interest already earned. Unlike simple interest, it grows exponentially — the longer you invest, the faster your money grows.

Question 2

What is the compound interest formula for investments?

Accepted Answer

Future Value = P × (1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) − 1) / (r/n)], where P is the initial investment, r is the annual interest rate, n is compounding periods per year, t is the number of years, and PMT is the regular contribution per period.

Question 3

How do monthly contributions affect investment growth?

Accepted Answer

Monthly contributions significantly boost long-term returns through dollar-cost averaging and additional compounding. Even small regular contributions — $100–$500/month — can dramatically increase final portfolio value over 20–30 years.

Question 4

What is a realistic average annual investment return?

Accepted Answer

The S&P 500 has historically averaged around 7–10% annually. For conservative planning, use 5–6% for diversified portfolios. Always use a conservative rate when projecting long-term financial goals.