Markets · 6 pages · 12 min

How compound growth is a math not a promise

Compounding applies growth to a growing base, and it does not promise that growth will be positive.

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From the opening

Compound growth means each period's change is applied to the amount you have after earlier periods, so gains can sit on top of prior gains and losses can sit on top of prior losses. It is a rule of arithmetic about a repeated rate, not a promise that any market will deliver a positive rate. The opening covers growth applies to a new base, losses use the same rule, and the rate is an input.

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Inside

Growth applies to a new base
Losses use the same rule
The rate is an input
A past average is not a contract
Where the idea stops applying
A distinction worth keeping

Sources

Compound interest
Compound annual growth rate

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How compound growth is a math not a promise

From the opening

Inside

Sources

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