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Compound growth: what actually does the work?
Updated 4 November 2026 · Educational content
Compound growth means that returns stay invested and can earn further returns. It is why the same percentage change produces a larger euro gain as a balance grows. It is also why a long timeline can make a small recurring contribution look surprisingly large.
A €100 example, without the hype
Suppose €100 grows by exactly 5% a year. After one year it becomes €105. In the second year, 5% of €105 is €5.25, leaving €110.25. That extra 25 cent comes from growth on the first year's gain. After ten years, the model reaches €162.89, even with no additional contributions.
This is arithmetic, not a description of how the stock market behaves every year. A real investment might fall in the first year, rise in the next and pay dividends along the way. The calculator smooths all that variation into one constant annual rate.
Contributions versus investment growth
Set aside €20 at the end of each month for ten years at an assumed effective annual return of 5%. Contributions total €2,400; the modelled balance is about €3,087. Roughly €687 is growth. Most of the balance still comes from money you put in. Keeping those two numbers separate avoids giving compounding credit for your own saving.
Why starting earlier changes the result
A one-off amount invested for twenty years has more compounding periods than the same amount invested for ten. With recurring saving, extending the timeline also adds more contributions. When comparing two results, check whether the increase comes from time, extra saving, or both.
Losses compound too
A 20% fall turns €100 into €80. A subsequent 20% gain only gets back to €96. Gains and losses do not simply cancel when expressed as percentages. That is one reason a straight-line assumed return cannot capture the full experience of investing.
Continue learning
Read our formula and contribution timing, then explore what inflation and costs change. The SEC's introduction to investing provides further background on compound growth and risk.