The genius of compoundingWhen purchasing a share, investors can elect how they will receive any future dividends. They can choose between receiving the cash, or instead, using that money to repurchase more company shares. When opting for reinvestment, the investor triggers the start of a process Albert Einstein called “the eighth wonder of the world”: the miracle effect of compounding interest.
Compound interest, put simply, is interest on interest and it can help an investment grow at a faster rate. By reinvesting dividends, you give your stock holding the potential to earn even more dividends in the future. Of course, the value of compounding increases over time, accelerating shareholder value, especially when share prices increase.