The Compounding Effect

The compound effect adds interest on interest, but not linearly. This effect works in an exponential way and, over time, generates extraordinary results. 

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Exponential thinking is not intuitive for the way our brains are built. Yet, when we put matters in perspective and use numbers, the effect becomes clear. Compounding does not mean adding, it means multiplying: 

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2 + 2 + 2 + 2 + 2 + 2 + 2 + 2  = 16

      2 x 2 x 2 x 2 x 2 x 2 x 2 x 2 =  256 

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When companies compound good financial results over time, their stock price will correlate over time. 

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At first sight, compounding at 3%, 4% or 8% might not look that much of a difference, but if we compound 100.000 € at these rates for 35 years, the result is astonishing as you can see above.