Compound Returns
Returns earned on both principal and previous gains.
Compound returns occur when investment gains generate their own gains in subsequent periods. A $10,000 investment earning 10% becomes $11,000 after year one; in year two, the 10% applies to $11,000 (not the original $10,000), producing $1,100 in gains. Over long periods, compounding creates exponential growth—the earlier you start investing, the more powerful the effect.
Example
A business owner invests $500/month starting at age 30 with 8% average returns—by age 65, the $210,000 contributed grows to approximately $1,050,000 through compounding.
Why It Matters for Your Business
Compound returns are the primary wealth-building mechanism for long-term investors, making early and consistent investing dramatically more powerful than starting later with larger amounts.
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