Accrual Securities: A Snowball Called Compounding


As you start to invest, an important concept to understand is that of compounding returns, as it will play a strategic role in your investments—particularly your stock and mutual fund investments. Essentially, compounding refers to receiving earnings on top of the earnings you have already received. Once earnings on an investment have been credited to you, they become part of the investment balance on which future earnings are based. The next time earnings are calculated, it is done on not only your invested funds, but also on any earnings that have been previously credited to you. The longer you maintain the investment and the earnings on it, the larger the amount on which the new ...

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