Basics Beginner: Make Compound Interest Work for You

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1.
The _______ you invest your money, the _______ compounding can work for you.
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Earlier / More. Compounding expands your money greatly over time.
2.
Which of the following are not tax-sheltered investments you can use to compound interest?
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Municipal bonds. Tax-deferred retirement plans and deferred annuities provide compounding interest, but municipal bonds pay only simple interest. However, you can get the effect of compound interest with a municipal bond fund if you reinvest the dividends.
3.
The amount of money you invest is called _______.
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Principal. The invested amount of money is called principal.
4.
Reinvesting your dividends helps you compound your earnings because it _______.
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Builds your investment base. The larger your investment base, the more there is to compound.
5.
The Rule of 72 states that if you divide 72 by a given interest rate, you will learn how many years it will take for an investment to double. How long would it take for an investment with an interest rate of 4% to double?
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18 years. Dividing 72 by 4 gives you 18.