How compound growth actually works

Compound growth happens when the returns your money earns start earning returns of their own. In the first year, your investment grows only from your original contribution. In later years, it grows from your original contribution plus every gain that came before it, which is why the growth curve above bends upward rather than climbing in a straight line.

The two levers that matter most are time and consistency. A smaller monthly contribution held for a longer stretch of years will often outperform a larger contribution started later, simply because it has more time to compound. This is the same math behind retirement accounts, and you can see the longer term version of it with our retirement projection calculator.

The rate of return you choose matters too, and it is worth being realistic rather than optimistic. The U.S. Securities and Exchange Commission publishes an overview of how compound interest works and why long term, diversified returns tend to run more moderate than short term speculation, which is a good place to check your assumptions against a more conservative source. You can read that explanation on investor.gov.