Compound return

Investing glossary · Practice and portfolio habits

Return earned on both the original investment and the returns already accumulated, so growth builds on itself.

Definition

Compounding means that each period's return is earned on the original amount plus all the returns accumulated so far. Growth therefore accelerates over time: the same annual rate produces a small gain at first and a very large one decades later.

Time is the main ingredient. Starting earlier matters more than picking slightly better returns, and fees or taxes that look small compound too. Compounding works in reverse with losses: a 50% fall needs a 100% gain to recover.

Formula

FV = PV × (1 + r)ⁿ

FV = future value, PV = starting amount, r = annual return as a decimal, n = number of years.

Worked example

Illustrative numbers

If you invest $10,000 at 7% a year, after 10 years it grows to $19,672, after 20 years to $38,697, and after 30 years to $76,123. Without compounding (simple interest), 30 years would give only $31,000.

The last decade adds more than the first two together: that is the compounding effect.

How ATLAS uses it

ATLAS models use a long-run return assumption of 7% a year, which compounds over time, and they show a range of outcomes rather than a single number.

Frequently asked questions

What is the rule of 72?

A shortcut: divide 72 by the annual return in percent to estimate the years needed to double. At 7% it takes roughly 10 years.

Why does starting early matter so much?

Because the earliest contributions have the longest time to compound, and growth in the final years is the largest.

Related terms

Put the idea to work on your own stocks

Open any company in ATLAS to see its fair value, its odds of rising and its risk numbers side by side.

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Not investment advice. ATLAS estimates are produced by statistical models from public data; they can be wrong and past performance does not predict future results. Consider your own situation before investing. Disclaimer