Compounding
Compounding is growth calculated on both the original amount and the gains already accumulated, so returns generate their own returns — and losses compound in exactly the same way, in the opposite direction.
£10,000 growing at 7% a year becomes roughly £19,700 after ten years and £38,700 after twenty. The second decade adds far more than the first, not because the rate changed, but because it is being applied to a larger base each year.
The part that gets left out
Compounding is usually sold as a reason to be optimistic. It is equally a reason to be careful, because it is symmetric: costs compound, and so do losses. A 1% annual fee is not 1% of your outcome over thirty years — it removes roughly a quarter of the final figure, because every pound taken in fees is also a pound that never compounds.
The mechanism that makes patience valuable is the same mechanism that makes an interruption expensive. Selling in a decline does not just realise the loss; it removes that capital from the compounding base permanently.
Why it is behavioural, not mathematical
Nobody disputes the arithmetic. What decides whether an investor actually receives compound growth is whether they stay invested through the periods that make staying invested uncomfortable — which is a question about behaviour, not about spreadsheets.
Related terms
Maintained by Jared Sinclair, Founder · Syrax Global FZCO · Definitions are educational, not financial advice.
Knowing the vocabulary is the easy part.
Every term here can be learned in an afternoon. Applying them consistently under pressure is the part that decides outcomes — and the part almost nobody measures. That is what the series is about.