Investing 101. This simple strategy gets a better return of 196.25%.

When it comes to investing, understanding the difference between compounding interest and simple interest can make a significant impact on your long-term returns. Simple interest is calculated only on the initial amount invested, while compounding interest takes into account both the initial investment and any accumulated interest.

The difference between the two approaches becomes more apparent over longer investment horizons. With compounding interest, your returns continue to grow exponentially over time, while simple interest provides a linear return rate.

To illustrate, let's say you invested $10,000 at a compounding interest rate of 8% for 30 years. At the end of the 30-year period, your investment would be worth $100,626. Simple interest would only yield $34,000 over the same period. This means you will have made $66,626 or 196.25% more with this simple strategy.