The key here is understanding the exponential growth involved in investments. You see you are earning x% on your initial investment but you are also earning x% on the x% that you earn. Here is an example:Originally Posted byCaro

2 year investment of $1000, return 10%

First year $1100

Second year $1210 (notice you earned $110 this year)

2 year investment of $1000, 8% then 12% (average 10%)

First year $1080

Second year $1209.60