Exponential Growth


DEFINITION of 'Exponential Growth'

A pattern of increasing prices that resembles the curve of an exponential function. In finance, exponential growth is caused by compounding returns. Given enough time, compound interest can theoretically turn even a relatively small amount of principal into a very large sum.

BREAKING DOWN 'Exponential Growth'

While exponential growth is often used in financial modeling, reality is often much more complicated. For instance, stock market returns clearly do not smoothly follow long term averages each year as predicted in simple financial calculations. Thus, other methods of analyzing long term portfolio values and expectations, such as Monte Carlo simulation, have seen increasing popularity.

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  1. What can I use the Rule of 70 for?

    The rule of 70 is used to see how long it takes for an exponentially growing value to double. It is most commonly seen in ... Read Full Answer >>
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  3. Why do financial advisors dislike target-date funds?

    Financial advisors dislike target-date funds because these funds tend to charge high fees and have limited histories. It ... Read Full Answer >>
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