™$100 earning an assumed 10% annually becomes $110 after one year and $121 after two, because the second year's return also applies to the first year's gain.
Risk & Portfolio
Compounding
Growth that earns additional growth on prior gains or reinvested income over time.
Plain-English context
Put the definition to work.
A constant return illustration omits volatility and cash-flow timing; arithmetic averages do not reproduce a compounded path.
Further reading and verification. Examples are hypothetical, not current quotes or recommendations. Product terms, tax treatment and market rules can change. Investor.gov — asset allocation and diversification