Compound interest for the stock market explained (ALL YOUR COMPOUNDING QUESTIONS ANSWERED)

Compound interest for the stock market explained. Here I have answered all YOUR COMPOUNDING QUESTIONS specifically for stocks and funds and how compound interest works in the stock market. Enjoy!

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Info:
Many people are familiar with compound interest and have heard that it is something that you have to use to really make your money grow, but there are also some question marks to sort out, not just for beginners. I have even heard very experienced investors say that you only compound interest if you buy dividend shares and then reinvest the dividend. But it is not true at all.

When do you get compound interest or compounding? You compound interest when you invest money in something that gives interest or return not only on the money you first invested but also on the money you earned on your investment, that is when you get interest on your interest or return on your return. Returns from stocks or funds can thus be either that the price of the share or the fund increases so you get capital gains or that you receive dividend payouts. And to get the best possible compounding on dividend stocks, you need to reinvest the dividend. And the compounding starts ticking directly from the first moment you start investing, but you notice the effect more the more money you have invested and the longer the time passes.

Does compound interest work for stocks and funds? Yes, it absolutely does. You do not need to get interest, but from stocks and funds, you get a return instead. So, it could be called compound return instead of compound interest. Or it is simply called compounding.

How does compound interest for stocks and funds work? I think a lot of the confusion here is that when you get the concept of compound interest explained to you, a bank account is often used as an example where you get interest once a year and that's it. But stocks and mutual funds do not behave in exactly the same way as a bank account. The share price moves all the time, and the fund price is updated once a day for traditional mutual funds and ETFs move like shares. So, compound interest here will be like a continuous process that happens all the time.

Time stamps:
0:00 Compound interest for stocks and funds
0:32 Does compound interest work for stocks?
0:44 When can interest be compounded?
1:26 How does compound interest work in the stock market?
2:54 Compound interest example
3:48 Do you have to buy a specific stock or fund to compound interest?
4:08 What can I invest in that has compound interest?
4:33 Can you get rich off compound interest?
5:37 Compounding for retirement
6:42 What is the compound interest formula?
7:29 How long it takes to double your money – rule of 72

#comoundinterest #compounding #compoundinterestforstocks

Disclaimer:
This content is for educational and entertainment purposes only. Money with Pennies does not provide investment, tax, or legal advice. Money with Pennies may have an ownership interest in stocks or companies mentioned. Do not make buying or selling decisions based on this video. All investment involves risk and the possibility of loss. Past performance is not indicative of future results.

[fragones]

Best explanation I’ve seen on YouTube, thanks!

[moneybee]

Einstein described compounding interest as *The 8th Wonder of the World* . It's so important to understand how it works so you can use it to propel you towards financial independence! Great video with really well thought out points. Keep up the great work! :)

[stephen-finance]

Great information! Got to love compound interest! Incredibly important topic for those trying to build wealth.

[WIKINGERBANDE-qdqz]

Since you don't have to sell the investment and reinvest the capital gain to be compounding, what happens when the investment suddenly depreciates will you loose your money since you didn't secure the gain? Will all the previous compounding affect be lost?

[Gauravify]

Great explanation! barely any one out there have explained this well. Video need more likes

[jayzheng]

If I am holding a long term stock, does compounding only work if I close the position and reinvesting the money? From your example, $10, 000 and if it goes up by 1% so it's $10, 100 (but this scenario is when you close the position and take your profit isn't it and reinvesting it)

[gdavish]

Thank you for the video. I wondered exactly how this worked. Let’s say there is a scenario where over 3 years a stock goes up by 5% per year. Then it goes down by 15%. Have you still made compound interest moving forward?

[ron]

Basically, if we buy and hold shares, every year, it is auto compounding?

[Ms]

How compounding work if I go by your suggestion and buy 10 stocks of a same company on monthly bases? Thanks

[Thebowler]

Great video! Very well explained, thank you!

[dorothywong]

Great video! It answered a lot of my questions of the Rule of 72 for stocks. Very helpful. Does the rule of 72 still apply if there are dividends being paid out?

For example, in the following scenario:
Expected Total Annual Return for a stock: 10%
Dividends paid out annually: 5%
Initial investment: $10, 000.
Will the $10, 000 initial investment double to $20, 000 in 7.2 years even if I receive 5% dividends every year?

Thanks very much!

[MacGregor]

Thank you for this information!! I’m very new to this and my question is when I went to buy more index funds there was an extra $500 in the Roth IRA account is that dividends that came back from my other mutual funds? Do I have to buy more mutual funds or index funds if that’s what’s called compounding interest?

[brandonmartin]

It just comes off as a Fancy term for picking the right investments some people may just run themselves off a cliff without understanding that anything under a dollar on the stock market has high-risk 😂 just people before you do anything invest Time in to researching a company or etf theres company's thatpay monthly quarterly and yearly dividend if you don't have a whole lot of money 7% return or higher is going to help you grow but you have to research before you invest 😊

[allsword]

Where to invest? How to buy share? I'm interested one time investment and get compound interest. Plz advise me

[Maloha]

Does compound interest also apply to shares held inside an employee stock compensation package?

[mwdnmjo]

how does the interest earn interest if I don’t sell and reinvest?

[mynameissam]

Please explain again as I am still confused at how it’s compounded. I’ve heard other people say the same as you.

In my experience investing in stocks, it seems to me that I’m not making a return on my return. You need to reinvest your gains in order to compound. Or am I missing something?

Or is the value of my portfolio taken into account instead of the principle?

That makes sense now.

If the value of my portfolio is 10, 000€ and I make 1% gain, then the value of my portfolio will increase by 1%.

[wendynoble]

Haha, the question i was always to embarrassed to ask...

[brandonmartin]

So basically just get dividend so you minimize risk lol

[TROZJAN]

So no maths genius skipped power 10 session