Compound

Compound
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Also known as "compound interest".

Suppose you invest $10,000 into Cory's Tequila Company (ticker: CTC). The first year, the shares rises 20%. Your investment is now worth $12,000. Based on good performance, you hold the stock. In Year 2, the shares appreciate another 20%. Therefore, your $12,000 grows to $14,400. Rather than your shares appreciating an additional $2,000 (20%) like they did in the first year, they appreciate an additional $400, because the $2,000 you gained in the first year grew by 20% too. If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns. In fact, $10,000 invested at 20% annually for 25 years would grow to nearly $1,000,000 (and that's without adding any money to the investment)!

The power of compounding was said to be deemed the eighth wonder of the world - or so the story goes - by Albert Einstein.


Investment dictionary. . 2012.

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  • compound — [ kɔ̃pund ] adj. inv. et n. • 1874; mot angl. « composé » ♦ Anglic. Machine compound, ou n. f. une compound : machine à vapeur à plusieurs cylindres dans lesquels la vapeur agit alternativement. Électrotechn. Excitation compound : excitation d… …   Encyclopédie Universelle

  • Compound — Com pound, a. [OE. compouned, p. p. of compounen. See {Compound}, v. t.] Composed of two or more elements, ingredients, parts; produced by the union of several ingredients, parts, or things; composite; as, a compound word. [1913 Webster] Compound …   The Collaborative International Dictionary of English

  • Compound — may refer to: Chemical compounds, combinations of two or more elements Compound (enclosure), a cluster of buildings having a shared purpose, usually inside a fence or wall Compound (fortification), a version of the above fortified with defensive… …   Wikipedia

  • Compound — Com pound, n. 1. That which is compounded or formed by the union or mixture of elements ingredients, or parts; a combination of simples; a compound word; the result of composition. Shak. [1913 Webster] Rare compound of oddity, frolic, and fun.… …   The Collaborative International Dictionary of English

  • compound — com·pound /kəm pau̇nd/ vt 1: to agree for a consideration not to prosecute (an offense) ◇ Compounding a felony is a common law crime. 2: to pay (interest) on both the accrued interest and the principal Merriam Webster’s Dictionary of Law. Merriam …   Law dictionary

  • compound — compound1 [käm pound′, käm′pound΄; kəm pound′; ] for adj.usually & for n.always [, käm′pound΄] vt. [ME compounen < OFr compon(d)re, to arrange, direct < L componere, to put together: see COMPOSITE] 1. to mix or combine 2. to make by… …   English World dictionary

  • Compound — Com*pound (k[o^]m*pound ), v. t. [imp. & p. p. {Compounded}; p. pr. & vb. n. {Compounding}.] [OE. componen, compounen, L. componere, compositum; com + ponere to put set. The d is excrescent. See {Position}, and cf. {Compon[ e]}.] 1. To form or… …   The Collaborative International Dictionary of English

  • compound — com‧pound [kəmˈpaʊnd ǁ kɑːmˈpaʊnd, ˈkɑːmpaʊnd] verb [transitive] FINANCE to pay interest on both a sum of money and the interest already earned on it: • My bank compounds interest quarterly. * * * Ⅰ. compound UK US /ˈkɒmpaʊnd/ adjective FINANCE ► …   Financial and business terms

  • compound — s.n. 1. Mod de grupare a două mecanisme, maşini etc. pentru a asigura funcţionarea lor asociată. 2. Masă electroizolantă constituită dintr un amestec de materiale electroizolante organice. [pr.: páund] – cuv. engl. Trimis de LauraGellner,… …   Dicționar Român

  • Compound — Com*pound , v. i. To effect a composition; to come to terms of agreement; to agree; to settle by a compromise; usually followed by with before the person participating, and for before the thing compounded or the consideration. [1913 Webster] Here …   The Collaborative International Dictionary of English

  • Compound 48/80 — is a polymer produced by the condensation of N methyl p methoxyphenethylamine with formaldehyde.[1] It promotes histamine release.[2] In biochemical research, compound 48/80 is used to promote mast cell degranulation. References ^ …   Wikipedia

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