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Time Value of Money
The time value of money (TVM) is the concept that money available now is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received.
Compound Interest
Compound interest is interest calculated on the initial principal and also on the accumulated interest of previous periods. Often described as "interest on interest," compound interest makes your money grow faster than simple interest. The more frequent the compounding, the higher the effective return.
Rate of Return (ROI)
A rate of return (RoR) is the net gain or loss of an investment over a specified time period, expressed as a percentage of the investment's initial cost. When calculating ROI, gains from investments are divided by the cost of the investment to determine the percentage return.
Investment Tips
Start investing early to maximize compound growth. Consistency matters more than timing - regular contributions can outweigh market fluctuations. Diversify across asset classes to manage risk. Consider tax-advantaged accounts like 401(k)s and IRAs for long-term growth.