What is the consequence of compound growth over time?

The consequence of compound growth over time is that it can significantly increase the value of an investment. This phenomenon occurs as earnings from an investment generate their own earnings; essentially, the returns earned on an investment are reinvested to generate additional returns. Over time, this accumulation can create exponential growth, as the base amount (including both the initial investment and the reinvested earnings) continues to grow, leading to larger returns in the future.

For example, if an investor contributes a sum to an account with a positive interest rate and leaves it untouched, the interest earned each year will be added to the principal amount. In subsequent years, interest is calculated on this larger amount, compounding the growth. This effect becomes especially pronounced over longer investment horizons, as the enhanced returns build upon themselves. Therefore, understanding the power of compound interest is crucial for anyone looking to maximize the long-term growth of their investments.