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How Compound Interest Works: Your 401(k) FBFF



As VP of Brand + Creative for Ubiquity, Sylvia is a creatively driven entrepreneur with an unprecedented passion for the written word. With over 22 years in marketing and advertising and titles ranging from Director to CMO, Sylvia has worked with mega giants including Intel, Microsoft, IGN Entertainment, Activision, and Apple. She has also worked on projects with Jack Johnson, Mariah Carey, Denise Richards and YMCMB’s Lil’ Wayne and Birdman. Most recently, Sylvia co-produced Broken Eggs, the hard-hitting, feature-length documentary about the looming retirement crisis in America.


February 27, 2017 at 10:00 am
Personal Finance


Hey there!

You may have been brought here by tacos, if not, meet your financial best friend forever (#FBFF).

So, what’s compound interest?

Merriam-Webster defines compound interest as:

Interest computed on the sum of an original principal and accrued interest.

Not helpful.” Understandable, don’t worry, we got you.

Compound interest gives you interest on top of your original investment and additional interest. Talk about a payday.

Let’s talk real world use.

Pretend you have $100,000.00 (I know).

If you were gaining, say, a 10% annual return, then you would end up with $10,000 added to your original investment. So, in our case, our end balance is $110,000 in year one.

Not bad!

Year two, the markets are great, and you are getting a 10% rate of return on $110,000, leaving you with an ending balance of $121,000. You earned $10,000 in year one. You earned $11,000 in year two. In year three, using this same math, you’d earn $12,100. Now imagine five years or more – talk about a snowball of money! And a lot of future tacos.