What is Compounding?

In Short

As a portfolio gets larger, the growth occurs on an expanding base, which means the amount of growth you experience each year is increasing. Compounding means you are earning money on your past earnings.

For Example

Say you have a $100,000 account and it is growing 10% per year. The first year you will make $10,000 and your account will at the end be worth $110,000. The second year you earn $11,000 (10% of your new initial account balance). At the end of the second year your account is worth $121,000. After 30 years your account is worth $1,740,000.23. For the 31st year, your account value increases by $174,000.20. So yearly growth went from $10,000 per year to $174,000.20 via compounding. You can think of getting a raise at your job every year. You can also think of a snowball rolling down a hill. Even if it starts very small, eventually it will grow very large.

Conclusion

Albert Einstein called compound interest the 8th wonder of the world. It is very powerful and can grow your portfolio very large. Compounding is not fast, but returns require patience. It takes time, but if you are willing to spend that time, you will be handsomely rewarded.


Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.


As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

E-Book Download

Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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