What it is
When a return is reinvested rather than spent, the next period's return is calculated on the new (larger) base — gains earn returns of their own. The longer this runs, the more the curve bends upward.The math, made visceral
- $10,000 at 7%/year for 10 years = $19,672
- $10,000 at 7%/year for 20 years = $38,697 (almost double the 10-year result)
- $10,000 at 7%/year for 30 years = $76,123
- $10,000 at 7%/year for 40 years = $149,745