Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie

Compounding question

Options
  • 10-09-2023 6:37pm
    #1
    FrankN1
    Registered Users Posts: 912 ✭✭✭


    Hi there,

    Just wondering with regards to compounding, how do it work on a monthly basis? For example if I drip feed 100 per month over a year. And the annual return is 10%, do I earn more than 10% of 1200 (120) in year one?

    Thanks in advance.



Comments

  • Options
    #2
    Buddy Bubs
    Registered Users Posts: 3,476 ✭✭✭Buddy Bubs


    No, because you only have 100 invested for a full year, not 1200. You have another 100 invested for 11 months, another for 10 months.........another for only 1 month. If returns are linear, without getting into too much maths, you will earn 60 euro.

    However in year 2, if the return is still 10% you will earn more than 120 because you now have your original 1200 will earn 120 and the 60 from year 1 if reinvested returns earning 6 so that's 126 and your year 2 contributions will earn 60 so 186 in total.

    In year 3, you have 1200 plus 1200 plus 186 invested at start of the year so your 10% will earn 258.60 on this on top of your returns for year 3 contributions.

    This is what compounding is, and it relies on you reinvesting your returns, not taking them as income each year.

    Note that 10% returns after charges and taxes is pretty fanciful on a long term basis for any investment



  • Options
    #3
    FrankN1
    Registered Users Posts: 912 ✭✭✭FrankN1


    Thanks a lot.

    Is DeGiro the best platform to use still or is there anything better that most people are using now?



Advertisement