What Is Compound Return?
Compound return, often referred to as compound interest, is the process by which your investment generates earnings not only on the original amount invested (the principal) but also on the accumulated returns. In simple terms, it means your money makes money, and then that money makes even more money.
For wealth management, compound gains are a cornerstone of long-term portfolio growth. The longer your capital stays invested, the more powerful the effect becomes.
Why Compound Returns Matter in Wealth Management
- Time is leverage: Small differences in annual return can have an exponential impact over decades.
- Patience is rewarded: Wealth managers often advise clients to stay invested, rather than attempting to time the market.
- Capital preservation meets growth: Compounding works even more effectively when combined with disciplined risk management.
Calculator
Use the calculator below to estimate how cumulative return could work for your portfolio. Enter your starting capital, expected annual return, and investment horizon.
Compound Interest Calculator: For interactive calculations, you can use the SEC compound interest calculator, our basic Swiss wealth management compound interest calculator or ask your wealth manager for a tailored projection.
Example of Compound Growth
| Year | Starting Value (CHF) | Annual Return (5%) | End Value (CHF) |
|---|---|---|---|
| 1 | 100,000 | 5,000 | 105,000 |
| 5 | 121,550 | 6,077 | 127,627 |
| 10 | 155,133 | 7,756 | 162,889 |
| 20 | 252,578 | 12,629 | 265,207 |
Note: This example assumes a fixed 5% annual return, which is simplified. Real portfolios fluctuate depending on risk, asset allocation, and fees.
Compound Return and Swiss Wealth Management
For Swiss Private Banking and independent wealth managers, compound returns are a central concept when building portfolios. Advisors highlight the importance of:
- Long-term investment horizons.
- Minimising unnecessary withdrawals.
- Managing costs and fees, since high charges erode the compounding effect.
FAQs on Compound Returns
What is the difference between compound and simple return?
Simple return is calculated only on the principal. Compound return adds the effect of reinvested gains, making it more potent over time.
How often is interest compounded?
Depending on the product, compounding can occur on an annual, quarterly, monthly, or even daily basis. More frequent compounding accelerates growth.
Can compound returns work against me?
Yes. Debt also compounds. If interest on loans accumulates, costs can grow exponentially, just like investments do on the positive side.
Conclusion
Compound return is not just a formula – it is the foundation of long-term wealth creation. For investors and wealth managers alike, understanding its mechanics helps align investment horizons with tangible outcomes. When combined with transparency, disciplined strategy, and cost control, compound returns make time the most potent ally in wealth management.
Further Reading
- Open Architecture in Swiss Wealth Management
- Comparing Fees in Swiss Private Banking
- Cross-Border Wealth Management in Switzerland
- Compound Interest Calculator
