What is compound growth?

Compound growth: Return on return. What you earn also earns something itself. Over long periods this makes a big difference.

With compound growth, what you earned before also earns something itself. Your interest or return is added to your money, and the next year that whole amount grows further.

In the first years the difference is small. The longer you wait, the bigger the effect. That is why the time period often matters more than the exact percentage.

It also works the other way. Costs and debts with interest grow in the same way.

Example
You put away 1,000 euros at 6 percent a year and leave the earnings in. After ten years you have about 1,791 euros. If you only earned 6 percent on the first 1,000 euros each year, you would have 1,600 euros. The difference of 191 euros comes from interest on interest.

Watch out
Investment returns are not the same every year. An example with a fixed percentage is a simplification, not a forecast.

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