From my understanding:
*To keep it simple, we will keep the asset as index S&P500, not including asset allocation.
Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan.
*I am aware that stocks pay dividends and not interest, but aren`t the dividends calculated to a % yield of the underlying stock which is converted to a dividend yield which is the same as interest earned?
Here is the part that I don`t understand in our current market condition:
The current S&P500 is paying less than 2% in the dividend yield
My understanding is that the compounding factor is 2% (Not including the growth factors of ~8% for S&P500)
So are we mostly relying on the growth of the market and consistent periodical investing instead of relying on the compound interest effect?
Because in our current time the historic dividend yield is very low?
So the only thing we can rely on is to the rate (time period) of the compound because the rate of the compound is low?
SP500 Mean & Median: https://www.multpl.com/s-p-500-dividend-yield
Min: 1.11% (Aug 2000)
Max: 13.84% (Jun 1932)