Compounding

Year after year, any money you invest may earn interest, dividends or capital gains. When you reinvest those earnings, they help generate additional earnings; those additional earnings help generate more earnings, and so on. This is called compounding. For example, if an investment returns 8% a year and its earnings are reinvested annually:

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After one year, your total return will be 8%.

· After five years, your cumulative total return will be 47%.

· After ten years, your cumulative total return will be 116%.

Some have called this the 8^th wonder of the world.

Your thoughts on this subject? Your comments appreciated!

Content © Rich Brott, 2011

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