Question 1

What is compound interest?

Accepted Answer

Compound interest is interest calculated on both the original principal and all previously earned interest. Because each period's interest earns interest in subsequent periods, growth accelerates over time  -  the longer the horizon, the more dramatic the effect.

Question 2

What is a safe withdrawal rate in retirement?

Accepted Answer

The 4% rule  -  based on the Trinity Study of US market data  -  suggests withdrawing 4% of your portfolio in year one, then adjusting for inflation each year. Actual sustainability depends on asset allocation, market returns, and the length of your retirement. 3.5% is more conservative for longer retirements.

Question 3

What is a FIRE number?

Accepted Answer

The FIRE (Financial Independence, Retire Early) number is the portfolio size at which your investment returns can cover your annual expenses indefinitely. It is calculated as annual expenses ÷ withdrawal rate. At a 4% withdrawal rate, you need 25 times your annual expenses.

Question 4

What is CAGR?

Accepted Answer

Compound Annual Growth Rate (CAGR) is the smoothed annual rate at which an investment grew from its starting value to its ending value over a given period. It shows the equivalent steady growth rate, even if actual year-by-year returns varied significantly.

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