<prompt> Human: Ive spent the last hour sifting through Google and reddit and have been unable to find this answer. I understand that your money buys shares and these shares increase and decrease in value. What I dont understand is how the value of your account grows. Does the number of shares you have in specified funds stay the same every year and the value of your 401k goes up and down based on those. Or are shares sold in profitable funds then new funds are bought with that money. I guess the concept of compound interest is throwing me off because that would need the funds to never go down and for each years increase to be compounds on last years gains? I think Im confusing myself now. Im 30 andcurrently have about 60k in my 401k and realized this morning I have some questions that I cant find the answer to.  <response>: I understand that your money buys shares and these shares increase and decrease in value.Yep. You buy shares at whatever the current price is, and then the price of each share can go up or down. When you buy mutual funds, youre buying shares in lots of different companies. Over time, the value of those shares, on average, go up. Then your shares are worth more money, so the value of your investment has grown. The important assumption is that the stock market, in aggregate, will continue to grow because companies are continuing to make money. What I dont understand is how the value of your account grows. Does the number of shares you have in specified funds stay the same every year.The value of the account grows when the value of the shares you own goes up. However, some stocks also throw off dividends these are like cash payouts. In most 401ks, youll have set your preferences to buy more shares with the dividends. In that case, some of your shares are growing in value, but youre also reinvesting your growth to buy additional shares. Importantly, the value of your account also grows because youre continuing to add to it. Thats not a compounding effect, but that helps fuels growth. The more money you have in the account, the faster it can grow. If you only had 1000 in your 401k and then left it alone, even a high percentage of growth wont get you to a million dollars by retirement. But if you keep adding money to it say, 1000 per month, then those single digits of growth every year will turn your investment into a lot of money after a couple of decades waaay more money than if you shoveled the same 1000mo into an account that didnt grow at all. Or are shares sold in profitable funds then new funds are bought with that money.Sometimes. It depends on the funds and the fund managers philosophy. Sometimes, if a fund manager thinks a stock is overvalued, she might remove sell stocks in a fund and replace them with stocks that they think have more potential. How often they do that is called the turnover rate. The philosophy of this sub is to invest in low-cost index funds, which are not actively managed. You can read more about index funds in the FAQs. I guess the concept of compound interest is throwing me off because that would need the funds to never go downInvestments are seeing compound growth not interest because the value of the growth compounds over time. It doesnt mean that funds never go down over a short period of time. But if you continue to invest even when the market is down, then your steady 401k contribution is buying you more shares because the price is down, and your contribution stays the same, your investment gets you more shares, so when the stocks begin to grow again, you can see even bigger growth. Thats what people mean when they say that stocks are on sale or theyre buying at a discount.If you log into your 401ks management interface, you should be able to see a graph of your accounts growth. Sometimes funds go up, sometimes they go down. Over the past couple of years, you shouldve been seeing a lot of growth. 