How does compounding of reinvested dividends add up over a long time?

When you reinvest dividends, each payout buys more shares, and those new shares then earn their own dividends and price growth, creating a snowball effect. Over decades, this compounding can account for a striking share of an investment's total return. Studies of long-run U.S. market history, including work highlighted by Morningstar and others, have found that reinvested dividends contributed a large portion of the S&P 500's total return over many decades, far more than price appreciation alone. The lesson: turning on dividend reinvestment during your accumulation years lets you harness that compounding automatically instead of letting cash sit idle. The effect is most powerful the earlier you start and the longer you leave it undisturbed, which is why patience and consistency beat clever trading for building wealth.