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What is Compounding?

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Compounding is the effect of reinvesting income from an initial investment, over a period of time.

This means when you earn income on your initial investment and reinvest that income to buy more shares, the next time you get paid it’s based on a bigger number of shares.

Compounding allows your wealth to grow exponentially, and if left to accrue over long periods, can provide a significant buffer against inflation, rising living costs and reduction in the value of currency.

Put very simply, compounding your investment income is like a snowball getting bigger as it rolls down the hill.