What is compound growth?

Compound growth refers to the phenomenon where the value of an investment grows exponentially over time due to the reinvestment of earnings. This concept often implies an increasing return on investment because the growth accumulates on the initial principal and the accumulated earnings.

Scott Young discusses how, theoretically, unending compound growth could lead to one person or organization controlling vast resources over time, such as through continuous investment in the stock market. However, he notes that in practice, compound growth cannot continue indefinitely due to factors like corruption, external competition, and practical limits to growth 1.

Additionally, Young highlights that true nonstop exponential growth is rare, as most scenarios involve regions of exponential growth followed by diminishing returns. For instance, in the context of learning, the initial phase often yields the most significant gains, but over time, the benefits decrease as one delves into more specialized or less impactful knowledge 2.