The Benefit of Compounding
Consider the concept of compounding as you prepare to make your new investment option selections. It occurs when the value of an investment increases over time. Simply put, compounding is the ability to generate earnings from previous earnings.
For example, when you open a savings account, your bank agrees to pay you an interest rate for choosing to save with them. The monthly interest the bank pays you accumulates on top of your initial deposit and any ongoing contributions. If you earn interest on your account for the month, the bank pays you interest on interest.
Go online here to use a compound interest calculator. You can experiment with various values to get an idea of how your savings can grow.
You may want to meet with a financial advisor to see what savings options are best suited for you based on your retirement goals.
Get in the Know
Key terms that you will hear within the next few months as PERF prepares to roll out a new set of investment option selections:
- Asset allocation – A strategy used to distribute funds among various types of investments.
- Diversification – A strategy designed to reduce exposure to risk by combining a mix of investments.
- Risk – The likelihood of a reduction or increase in the value of an investment.
- Return – The increase or decrease in value of an investment.
