A Roth IRA works in three basic steps:

1. You put money into the account.

2. You choose investments.

3. Those investments may grow or lose value over time.

Think of it like planting a garden:

Your contribution = the seeds
Your investments = what you plant
Time = the growing season

These numbers are not always the same.

Example

Maya contributed:

$1,000

Her investments grow, and the account becomes worth:

$1,120

That means:

Contributions: $1,000
Investment Growth: $120
Account Value: $1,120

But investments can also fall.

If her account later becomes worth $930, she still contributed $1,000. The value of her investments changed.

Compound growth means your money may earn growth, and then that growth may have the opportunity to earn more growth.

Think of a snowball rolling downhill.

It starts small.

As it rolls, it collects more snow.

Then the larger snowball can collect even more.

Simple Example

You invest $100.

If it earns a hypothetical 10% return:

Year 1: $100 → $110

If the next year also earns 10%:

Year 2: $110 → $121

The second year, you earned growth on both your original money and previous growth.

Returns are not guaranteed, but this shows why time can matter so much in long-term investing.

Layla's investment growth begins producing additional growth over time.

What is this called?

A. Diversification
B. Compound growth
C. Contribution limit
D. Withdrawal