Based on the rough numbers you've given me, you are either in the 28 percent or 31 percent tax bracket. So every dollar you invest in your Teacher Retirement System account shaves either 28 cents or 31 cents off your income tax. When and if you get ready to move into a home entirely your own, I strongly suggest you seek the advice of a tax professional who can help you navigate the regulations and minimize the tax implications. As long as you are plowing the earnings back into your investment you are compounding its return. This would include, for instance, allowing the interest on a bank savings account to stay in the account instead of taking it as a withdrawal or using dividends earned by your stocks to buy additional shares.
Mutual funds consist of a pool of money from thousands of investors.
They can invest in everything from Treasury bills to stocks to natural resources to bonds to real estate. The manager of the mutual fund decides what specific securities to buy based on the fund's prospectus, the legal document which spells out how the money can be invested. As a shareholder in a mutual fund, you own a cross-section of all the securities the fund owns. When the mutual fund has earnings, instead of taking them in cash, you can instruct the manager to use them to purchase additional shares of the fund in your name. But compounding is only as effective as the underlying investment.