Compound interest is when your money grows over time as investments gain value. Each time your portfolio goes up 1%, it’s not just the principal that gains value. All of your unrealized gains also go up by an extra 1%.

For instance, a 10% return on $100 turns it into $110, which is an extra $10. Then, if you get the same 10% return the following year, your $110 balance turns into $121. Not only did the $100 principal increase, but the $10 earned in the previous year also increased by 10%.

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