How to compound stocks?

Hi Kaleb

Compound frequency refers to how often the investment’s returns are reinvested or compounded within a specific time period. For example, if you choose «daily,» it means the returns are compounded every day. The higher the compounding frequency, the faster your investment can potentially grow, but it also depends on the actual returns of the investment.

Monthly compounding is often used for calculating compound interest because it strikes a balance between accuracy and practicality. It’s frequent enough to capture compounding effects well but less cumbersome than daily compounding. Monthly compounding simplifies calculations while still providing a reasonably accurate representation of how an investment grows over time. This frequency is practical for many financial applications, making it a common choice in various interest calculations and investment scenarios.

It’s all quite academic but the more important assumption will generally be the annual rate of return, then play around with daily, monthly etc to see how it changes with each choice.

Hope this helps! Also, have linked an old thread that’s somewhat related.

Here’s a thread on compounding https://pearler.com/explore/ask/exchange/how-...

Hi Kaleb,

Nick has given some good info here.

For the purpose of simple calculations looking at shares, pretty much everyone just uses «Yearly»

This is a simple choice to use as we’re often investing for a number of years and it’s also easy to think about.

Whenever you aren’t sure of something, the simplest option is usually a good place to start :)