You have some money that you've earned and stashed in your saving account. Now it's time to watch it grow. Yes, it can grow a lot.
If you leave your money to grow for a long time, $100 can turn into a million dollars. The longer you leave your money, the more it grows. It's called compounding!
It depends on three things:
- how much you invest
- how long you invest it
- the rate of growth
When something grows over time, the amount by which it grows also grows.
For example, if you start with $100 and a 10% growth rate, you will earn $10 the first year that you invest it. If you leave that $110 alone and don't spend it, then the next year you will have $121. 10% of $110 is $11. You have the originial $100 plus the $10 you earned the first year and an $11 dollars that you earned the second year.
Your inital investment of $100 is growing and the amount by which it's growing is also growing. That's compounding.
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