Compound interest (compounding)
Compounding is earning returns on your past returns, so an investment can grow at an accelerating pace the longer it is left to work.
Compound interest — or compounding — is the process by which the returns an investment earns themselves start earning returns. Reinvest a stock’s dividends or let gains ride, and next period you earn on a larger base. Over long horizons this snowball effect becomes the dominant driver of wealth: the same annual return produces dramatically more over 30 years than over 10, because growth builds on growth.
The two levers that matter most are time and rate. A modest return compounded for decades can outpace a higher return over a short period, which is why starting early is so powerful. Compounding also works in reverse for costs: high fees, compounded over time, quietly erode a large share of the final result.
stocks-llm surfaces the dividends and cash returns companies generate, but it does not project or promise any compounded return. This definition is educational only.
See more terms in the stocks-llm glossary.
Informational only — NOT financial advice. This is an educational definition, not a recommendation to buy or sell anything. Metrics on stocks-llm are delayed data and may be missing or stale. Always verify information independently and consult a qualified financial professional before making any investment decision.