highkicknomore - sorry if this is basic.
You have essentially two account types you can open: taxable where you're taxed on divs and any distributions in the year they happen, and non-taxable where everything grows tax deferred.
Under the latter, you have a traditional IRA and a Roth IRA (and 401k, SEP IRA, and so on). In your IRA, depending on where it's held, you can have mutual funds, ETFs, stocks, bonds, REITs, cash, CDs, etc. I won't go over the difference between the IRAs here for the most part, but a Roth is not tax deductible now, but you won't pay taxes on distributions in the future whereas a traditional is the opposite (deductible now, taxed later).
The only way compound interest works with a mutual fund is when the fund pays distributions, and you automatically reinvest those into the fund. This is called Dividend ReInvestment Program aka DRIP. When you DRIP, you are able to buy fractional shares of your investment. Each time the investment pays distribution (dividend, capital gains, etc) your partial share increments increase due to compound interest.
It will be barely noticeable, if at all, with small investments. However, once you start getting into the thousands of dollars, and you track the DRIPs, you'll see an incremental increase each time you receive a distribution.
Mutual Funds are ok in a 401k, and if you're just getting started out, and you choose a very low cost index fund. I think I made an example 5 ETF portfolio earlier in this thread, but I can't be arsed looking it up, so here goes again. Large cap index, small cap index (prefer a small cap value index), international index, bond index and a REIT. At Vanguard that is VOO, VB (VBR), VXUS, BND, VNQ, respectively.
For most people their base, largest holding will be something like VOO. If you don't want to invest in two different funds (VOO and VB), you can buy VTI, which is a total US stock market. Good fund, IMO.
