INVESTOR EDUCATION
Compounding, Term Length and the Cost of Early Exit
How maturity dates shape realised return, and why holding a position to term matters more than entry timing.
KEY TAKEAWAYS
- Time in the position beats timing the entry.
- Early exit forfeits the accrual that has not yet been credited.
- Plan liquidity before you commit capital to a term.
Why term matters
Return accrues across the life of a position. Exit halfway and you take half the accrual, but you also pay the full opportunity cost of having committed the capital in the first place. The maths rewards patience because the later days of a term carry the same rate as the early ones on a larger base.
The cost of interrupting
Investors who move between positions frequently tend to underperform the very portfolios they hold. The gap is behavioural rather than analytical: exits cluster after bad weeks and entries cluster after good ones.
Plan the liquidity first
Before committing to a term, set aside the cash you expect to need. Capital you may need in 30 days does not belong in a 90 day position, regardless of how attractive the rate looks.
This note is published for information only. It is not personal investment advice, and the value of investments can fall as well as rise.