Compounding

Compounding refers to the process where the returns on an investment generate their own earnings over time, leading to exponential growth. Essentially, you earn interest not only on your original amount, but also on the interest that accumulates. For example, if you invest $1,000 with a 5% annual return, after one year you'd have $1,050. The next year, you earn 5% on $1,050, and this cycle continues. Over time, compounding accelerates growth, making your money grow faster the longer you leave it invested. It’s a powerful concept for building wealth through patience and consistent investing.