Good morning [%first_name |Dear Reader%],

Some lessons bear repeating, they’re just that important. 

When it comes to building nice, chunky corpuses, there are few factors more beneficial than the magic of compounding. It’s even been called the eighth wonder of the world. 

Last week, I wrote about how tax deferrals can be used as a tool to eke out better returns from cumulative deposits. This works because putting off tax payments until you actually receive the interest in hand exposes the entire sum to the full benefit of compounding. 

But not all deposits on offer are cumulative, and knowing which is which can go a long way towards designing a better investment portfolio.

The forever magic of reinvesting

Cumulative deposits are wealth ‘compounders’. 

Not only does the original investment earn interest, the interest does too. 

The interest earned from a cumulative deposit during a particular period—say a quarter, half-year, or year—is reinvested and earns interest for all the remaining periods until maturity.