What Is Compounding in Stocks? How Compound Interest Works?

What Is Compounding in Stocks? How Compound Interest Works?

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Did you know that every major stock exchange has more than 2,000 stocks? In fact, the NYSE has more than 7,000.

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Acquiring stocks has been a common investment approach for centuries. With smart investing, you can reap some amazing rewards!

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If you are interested in investing in stocks, it is important to be familiar with compounding and compound interest. Continue to read to learn more.

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What is Compound Interest?

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Compound interest is a popular concept for a reason. When an investment earns compound interest, you can be earning more for a longer period of time.

You can think of compound interest as earning interest not only on your original investment but earning interest on your interest. Yes, that may sound a little complicated!

In other words, you will earn more money with compound interest as it pays on the interest you earned from your initial investment. If you have an opportunity to earn compound interest, make an investment that is long-term and refrain from taking money out of the investment as years go on.

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Stocks and Compounding

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Compounding with stocks can be a great strategy to build wealth. Before we dive deeper into the relationship between stocks and compounds, what exactly is a stock?

A stock is owning a piece of a publicly traded company. When one acquires a stock, you technically own a share (piece) of the company.

Since a company's value can change rapidly, so can the value of your stocks. Investing in stocks has an element of risk, but with greater risks come greater rewards.

When you choose to reinvest the earnings you make (called dividends), you are compounding your rewards. In essence, you are making more money on the money you already earned.

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Compounding Interest with Stocks Example

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You or a loved one decide to buy stock in an upcoming technology company for $1,000. The stock value is expected to increase by 8% every year.

After your first year, you would earn $80 on your initial investment. You decide to reinvest the $80 you earned. Therefore your new total investment is $1,080.

As each year passes, you continue to earn 8% interest and reinvest it. You see your earnings grow steadily and reap the rewards!

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Compound Stocks with Alinea Invest

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Now is the time to start investing in stocks! Whether you are a beginner or a veteran, planning a long term investment strategy can help provide future wealth. Compounding your stocks is a great approach!

Not only can investing be financially lucrative, but it can be an enjoyable experience as well.

We encourage our clients to invest where their mouth is.

Is there a cause you care about? An industry you are passionate about?

Whether you believe aerospace is the future or want to help stop global warming, you have the power to invest in companies you believe can have a significant impact. Earn compound interest as you play a role in changing the world!

To learn more about Alinea Invest and how to get started, we invite you to sign up today.

(i) Disclaimer

The Content is for informational purposes only, you should not consider any such information or other material as investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by Alinea Invest or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction. When investing your capital is at risk.

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