Investment Growth

A balance rises for two distinct reasons: money added, and money earned on what was already there. Early on, contributions dominate. The crossover, where annual growth exceeds annual contributions, is the point most people are actually describing when they talk about compounding taking over.

Because both are mixed into one line, a rising balance says nothing on its own about performance. A portfolio can grow every month while trailing its benchmark badly. Separating the two is the only way to tell contribution from return.

Drawdowns are part of the series rather than an interruption of it. Every US market decline to date has been followed by a recovery to a new high, though the recoveries have taken anywhere from months to over a decade, and the length is what determines whether an investor was able to wait.