In depth exploration of compound interest I actually have some confusion and questions about compound interest. But after discussing with Gemini just now, I feel that my thoughts have become much clearer. Organize and share as follows: one ️⃣ External compound interest and internal compound interest My question: According to the definition of compound interest, shouldn't it be the act of reinvesting the "earnings" along with the principal in order to generate compound interest effect? So, bank deposits can be calculated as compound interest; But when buying stocks, how can compound interest be calculated without cash dividends? Gemini's answer: My understanding of the first half is correct, but there is a deviation in my understanding of the second half. Because compound interest is divided into external compound interest and internal compound interest. Not to mention external compound interest, internal compound interest refers to high-quality stocks that do not distribute dividends. Although no dividends were distributed from operating profits, the profits were used to continue investing in the company's business, driving continued growth in performance and profits, which in turn reflected in the stock price. This is' internal compound interest ', and the leader among them is Warren Buffett's Berkshire Hathaway. I understand now. My previous understanding was biased. Stocks, especially those of high-quality companies, can still be typical of compound interest investments. two ️⃣ The Three Hard Constraints of Compound Interest To achieve long-term compound interest growth, there are three constraints: 1. Elasticity 2. Capacity 3. Persistent Elasticity refers to the risk that such investments should not have a significant loss of principal, capacity refers to having sufficient capital capacity, and persistence naturally refers to being able to invest continuously for a long time in order to allow time to unleash the magic of exponential growth. Essentially, achieving compound interest effect means rolling a snowball on a sufficiently long, wide, and relatively safe snow slope. three ️⃣ Speculation, Gaming, and Compound Interest Investment With the previous foundation, we will find that many tracks may appear glamorous in the short term, but they do not actually comply with the rules of compound interest investment. For example, memes, contracts, DeFi arbitrage, and so on, these can be very profitable in the short term with extremely high returns, but often: 1. There is a possibility of significant loss in principal (not low at all) 2. Limited capital capacity 3. Limited duration (short opportunity window) These can all be considered as games and short-term speculation, but it is difficult to meet the standards of compound interest investment. four ️⃣ Where to find a compound interest track For us ordinary people, there are two options: 1. Large Cap Index Fund (S&P 500) 2. High quality enterprise equity With a large capital capacity, high safety factor, and sustainable time, it belongs to the true meaning of compound interest investment track. five ️⃣ Personal inspiration After sorting it out, I have gained new insights: 1. Don't confuse short-term speculation with long-term (compound interest) investment 2. The cryptocurrency market and the US stock market are not a binary choice 3. Short term speculation is possible, but the profits earned should be invested in areas that can continue to appreciate in the long term (such as Bitcoin, US stock funds, high-quality US stocks, etc.) 4. Long term planning is necessary for life and investment. Without foresight, there will always be immediate worries. I hope it can also inspire everyone. The above.