Compound interest for the stock market explained (ALL YOUR COMPOUNDING QUESTIONS ANSWERED)

[@larrydimon7811]

Watching in my 40s... And only just starting I feel so behind!

[@Couchlnvestor]

Gotta start somewhere

[@ShelleyfromCali]

​Keep going mate I started at 41... was in 7K debt and living in my overdraft. I'm now debt free have a 15K emergency fund. 20K saving pot and just surpassed 150K. Diversification and a clear understanding of your financial goals are key... I am almost 43 now!

[@VanillaCherryBread]

The only comparison that matters is the one to yesterday's self. Today you're starting which means you're already better than you were yesterday:)

[@philcrowley007]

I lost a lot chasing individual stocks and I feel pretty silly for not understanding how investing works. I have a double major in economics but I’ve been trying to make sense of the market. Well done on profits!

[@ShelleyfromCali]

Keep it simple, buy things you understand, take some risk but don't try to shoot the lights out. I’m invested in ETFs, equity index funds, and individual stocks and use a CFA. On average, she takes 10% of earnings, but using *Lina Dineikiene's* system makes it much more hands-off. I conservatively follow her recommendations and market entry and exit points, and tbh this makes it fairly simple for me... I am convinced it's not just hard work but smart work :-)

[@fragones1237]

Best explanation I’ve seen on KZbin, thanks!

[@MoneywithPennies]

Thank you so much. =)

[@ron2040]

Basically, if we buy and hold shares, every year, it is auto compounding?

[@MoneywithPennies]

Yes

[@mynameissam77]

I’m not sure if you’re right. Correct me if I’m wrong but stocks do not compound. You don’t get returns on your returns. Your investment in a stock can only appreciate or depreciate in value. I’ve looked at my stock portfolio and the percentage gained is calculated from my initials investment which then provides me with my daily return. If there is compounding occurring, please explain how?

[@whatthedeuce3006]

@@mynameissam77 how much time you invested in stocks? more then a year?

[@hueyandmo]

​@@mynameissam77 it sounds to me like it's not technically compounding. What's happening is that the stock market is always increasing in value at a rate that acts similar to if the money had compounded. Individual stocks will vary though.

[@moneybee]

Einstein described compounding interest as *The 8th Wonder of the World* . It's so important to understand how it works so you can use it to propel you towards financial independence! Great video with really well thought out points. Keep up the great work! :)

[@MoneywithPennies]

That is so true. Definitely one of the most important financial concepts to understand. Thanks for the kind words. =)

[@jayzheng97]

If I am holding a long term stock, does compounding only work if I close the position and reinvesting the money? From your example, $10,000 and if it goes up by 1% so it's $10,100 (but this scenario is when you close the position and take your profit isn't it and reinvesting it)

[@MoneywithPennies]

No, you don't have to sell to be compounding.

[@AmanSingh-ox6kk]

You could have explained, why not​@MoneywithPennies

[@Maloha486]

Does compound interest also apply to shares held inside an employee stock compensation package?

[@MoneywithPennies]

I don't know the exact terms of the contract but I would assume so.

[@stephen-finance]

Great information! Got to love compound interest! Incredibly important topic for those trying to build wealth.

[@MoneywithPennies]

Sure is.

[@melissacoconut]

Most amazing explanation -- you just answered every single question that came into my head from your previous comments. Thank you!

[@Gaurav21ify]

Great explanation! barely any one out there have explained this well. Video need more likes

[@user-mw4dn2mj8o]

how does the interest earn interest if I don’t sell and reinvest?

[@MoneywithPennies]

All the money you have invested earn interest, not just the principal. Say you invested 80 dollars and the market went up and you now have 100 dollars. If the stock or fund then goes up 10% more then you will have 110. You don't have to sell and reinvest. Think about it like each day what ever happens to the stock (or whatever you are investing in) the whole sum of you investment will go up or down as the investment moves. =)

[@314WIKINGERBANDE-qd9qz]

Thanks

[@Ms29632]

How compounding work if I go by your suggestion and buy 10 stocks of a same company on monthly bases? Thanks

[@MoneywithPennies]

As long as the stock goes up you will earn more and more.

[@thebeddoctor4273]

@@MoneywithPennies regular growth is not compounding. That's just growth

[@MacGregor9488]

Thank you for this information!! I’m very new to this and my question is when I went to buy more index funds there was an extra $500 in the Roth IRA account is that dividends that came back from my other mutual funds? Do I have to buy more mutual funds or index funds if that’s what’s called compounding interest?

[@MoneywithPennies]

I don't know if that is from dividends it depends on your fund. If you want the uninvested money to grow with compound interest they need to be invested.

[@314WIKINGERBANDE-qd9qz]

Since you don't have to sell the investment and reinvest the capital gain to be compounding, what happens when the investment suddenly depreciates will you loose your money since you didn't secure the gain? Will all the previous compounding affect be lost?

[@PeaLoop]

You can lose if you sell low. Or you can wait in the hope that it comes back up. Gains aren't guaranteed.

[@drleo6409]

Yes the value/ principle can go up and down. That is why I find a stock and watch the pattern then buy on the low side and sell as it reaches a new high and begins to turn down,I sell and wait for a new low to buy again. This is called “swing trading”.

[@allsword6970]

Where to invest? How to buy share? I'm interested one time investment and get compound interest. Plz advise me

[@MoneywithPennies]

A global index fund is a good start.

[@gdavish]

Thank you for the video. I wondered exactly how this worked. Let’s say there is a scenario where over 3 years a stock goes up by 5% per year. Then it goes down by 15%. Have you still made compound interest moving forward?

[@MoneywithPennies]

Yes, more or less it compounds instantly right but for the sake of this example let's say that it happens yearly. So let's say you invested 100 and in year 1 it increased by 5%. After the first year, you have 105. In the second year, you have 110,25, and third year 115,7625. Now it goes down by 15% then you end up at 98,40 so less than you began with. So in this case compounding resulted in a loss. I hope this answered your question. =)

[@dorothywong8462]

Great video! It answered a lot of my questions of the Rule of 72 for stocks. Very helpful. Does the rule of 72 still apply if there are dividends being paid out? For example, in the following scenario: Expected Total Annual Return for a stock: 10% Dividends paid out annually: 5% Initial investment: $10,000. Will the $10,000 initial investment double to $20,000 in 7.2 years even if I receive 5% dividends every year? Thanks very much!

[@MoneywithPennies]

Then you have to reinvest the dividend.

[@The757bowler]

Great video! Very well explained, thank you!

[@btm1]

Very clear explanation, thanks!

[@MoneywithPennies]

Happy you found it helpful. =)

[@elijahyoo4793]

great video thank you !

[@mynameissam77]

Please explain again as I am still confused at how it’s compounded. I’ve heard other people say the same as you. In my experience investing in stocks, it seems to me that I’m not making a return on my return. You need to reinvest your gains in order to compound. Or am I missing something? Or is the value of my portfolio taken into account instead of the principle? That makes sense now. If the value of my portfolio is 10,000€ and I make 1% gain, then the value of my portfolio will increase by 1%.

[@lyndelacruz6998]

Best l love this content

[@brandonmartin7260]

It just comes off as a Fancy term for picking the right investments some people may just run themselves off a cliff without understanding that anything under a dollar on the stock market has high-risk 😂 just people before you do anything invest Time in to researching a company or etf theres company's thatpay monthly quarterly and yearly dividend if you don't have a whole lot of money 7% return or higher is going to help you grow but you have to research before you invest 😊

[@wendynoble6545]

Haha, the question i was always to embarrassed to ask...

[@MoneywithPennies]

If I did not answer them all, let me know and I can make a part 2 . =) Thanks for checking out this video Wendy, I appreciate your support. =)

[@TROZJAN]

So no maths genius skipped power 10 session

[@brandonmartin7260]

So basically just get dividend so you minimize risk lol