Understanding Compound Interest

What is the main advantage of reinvesting earned interest back into the principal of an investment?

• It guarantees a fixed return.

• It allows for tax deductions.

• It reduces the risk of loss.

• It significantly grows the investment over time.

In the hypothetical scenario, how much more did the investor who reinvested interest earn compared to the one who withdrew it annually?

• $45,123

• $700

• $66,123

• $21,000

How does an additional 15 years of compounding affect the growth of an investment?

• It triples the investment.

• It doubles the investment.

• It reduces the investment.

• It has no effect.

What is one of the most important steps to harness the power of compounding?

• Investing in high-risk stocks.

• Avoiding all risks.

• Starting to invest early.

• Withdrawing earnings annually.

Which strategy can help reduce some of the risk in a portfolio?

• Investing in a single asset class.

• Ignoring market trends.

• Reinvesting all earnings.

• Asset allocation and diversification.