However, in the second year, your portfolio's growth rate would be $11,000 (10% of $110,000). Each year, 10% of the portfolio would add even more than the year before. And you might be surprised at how this can add up over time.
Of course, stock market investments don't grow at the exact same rate year after year. However, the principle of exponential growth still applies to long-term investing.
Example of exponential growth at work
Let's see how this can work over the long run. Of course, stock market returns vary from year to year, but the long-term return of the S&P 500 is approximately 10% per year on an annualized basis. From 1965 through 2023, it has averaged 10.2%, but we'll use 10% to keep the math simple.