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Compounding is the process where an investment earns interest, which is then reinvested to earn more interest. The key to beating inflation is regular, systematic investments (SIPs) in equity index funds, allowing you to buy more units when prices are low and compound over decades.
Investing $200 monthly at a 10% expected annual return compounds to approximately $41,200 in 10 years, and $152,000 in 20 years.
Test your understanding of the core concept.