Compound growth means your investment earns returns on both the original amount and all accumulated returns. Over time, this creates exponential growth โ the longer the timeframe, the more dramatic the effect.
Historically, the S&P 500 averages about 10% annually before inflation. A diversified portfolio typically returns 6-8% after inflation. Returns vary by asset class and risk level.
Dollar-cost averaging means investing a fixed amount regularly regardless of price. You buy more shares when prices are low and fewer when high, reducing the impact of market volatility.
Lump sum investing outperforms dollar-cost averaging about 68% of the time (markets trend up). However, DCA reduces risk and emotional stress. Use DCA if investing from regular income.
Fees compound negatively. A 1% annual fee on a 30-year investment can reduce your final balance by 25% or more. Choose low-cost index funds and ETFs to minimize fees.
Risk is measured by standard deviation (volatility) and maximum drawdown. Higher potential returns typically come with higher volatility. Diversification reduces risk without proportionally reducing returns.