Question 1

How does compounding frequency affect my returns?

Accepted Answer

More frequent compounding leads to higher returns. Daily compounding will yield slightly more than monthly, which yields more than yearly. However, the difference becomes smaller at higher frequencies.

Question 2

What is the Rule of 72?

Accepted Answer

The Rule of 72 is a quick way to estimate how long it takes to double your money. Simply divide 72 by your interest rate. At 8% interest, your money doubles in approximately 9 years (72 ÷ 8 = 9).

Question 3

Should I contribute at the beginning or end of the period?

Accepted Answer

Contributing at the beginning of each period (annuity due) results in slightly higher returns because your money has more time to compound. This is ideal if you can afford to invest earlier.