Compounding returns, your money works for you

As a snowball rolled downhill will collect the snow it rolls over and therefore grows to be a much larger ball at the bottom of the hill. 

Consider your bank account. Each month the money saved in your account will earn interest. In subsequent periods, the bank will pay you for holding in your account the interest earned in previous periods. Interest is earned on previous interest payments is called compound interest.

The returns from investments also compound to patient investors. When companies return capital to investors (through dividends or share repurchases) investors will obtain a larger stake in the business either either reinvesting the dividends or by holding a larger proportional stake in the business because fewer shares are outstanding.  Companies could also use proceeds to invest in their business operations (think expansion or research and development); this investment is intended to compound the returns of the business and shareholders should experience compounding returns through increased share prices.