---
title: "Reinvest profits"
description: "Reinvest profits is the simulation assumption that decides whether realized profits are put back to work in the strategy and compound, or are set aside as cash."
canonical_url: "https://fincanva.com/docs/backtesting/reinvest-profits"
last_updated: "2026-07-25"
md_url: "https://fincanva.com/docs/backtesting/reinvest-profits.md"
---

# Reinvest profits

Reinvest profits is the [simulation assumption](/docs/backtesting/simulation-assumptions) that decides whether a strategy's realized profits are put back to work — so they compound — or are set aside as cash and stop contributing. In the app it is the switch labelled **Reinvest profits**, described as "Compound realized profits" and shortened to "Reinvest" in the assumptions summary. Only [realized](/docs/analysis/realized-vs-open-p-l) profit is affected: an open position's paper gain is already at work in the position itself.

**Also seen as:** Reinvest, compounding, profit compounding. Not to be confused with [**Reinvest delay**](/docs/strategies/reinvest-delay), a separate screening-strategy setting that waits a number of months before freed-up cash goes back to work.

## What changes when reinvest profits is off?

With the assumption off, profit taken out of a closed position no longer increases the capital the strategy deploys on the next rebalance. Position sizes keep being computed from a base that does not grow with past wins, so profit accumulates beside the strategy instead of inside it — growth is additive rather than compounding, and a long run ends visibly lower than the same run with the assumption on.

With it on, each realized profit raises the capital at work, so later positions are sized off a larger base. That is compounding, and it is the reason the gap between the two views widens the longer the run.

## Which annualized-return metric does it drive?

This assumption also decides which annualized-return figure the metrics table shows, because only one of the two is meaningful for each case:

- **On → [CAGR](/docs/analysis/cagr)**, the geometric annual growth rate — the right measure when profits compound.
- **Off → [AAGR](/docs/analysis/aagr)**, the arithmetic average of the annual returns — the right measure when they do not.

The row swaps in place, so a figure you read as "the annualized return" can be either metric depending on this one switch. Check which of the two labels the row is carrying before comparing two strategies.

## Defaults in Fincanva

- **Reinvest profits is on by default** — the one assumption of the three that starts switched on, so results compound out of the box.
- Flipping it switches the displayed result immediately, with no new run (see [simulation assumptions](/docs/backtesting/simulation-assumptions)).
- It applies to realized profit; unrealized gains on open positions are unaffected either way.
- Cash the strategy is not holding in positions accrues interest in the simulation on its own terms, independently of this assumption — see [interest received and paid](/docs/analysis/interest-received-and-paid).
- It is independent of the [costs](/docs/backtesting/costs-toggle) and taxes assumptions, so any combination of the three can be viewed.

## Worked example

Take 10,000 of starting capital and, purely to isolate the mechanic, a flat 8% a year for 10 years.

- **Reinvest profits on** — each year's 8% is earned on a base that already includes previous years' profit: 10,000 × 1.08¹⁰ ≈ **21,589**.
- **Reinvest profits off** — each year's profit is 8% of the original 10,000, i.e. 800, set aside ten times: 8,000 of profit on top of the untouched 10,000 = **18,000**.

Same strategy, same yearly return, a gap of about 3,589 that comes only from whether profit was put back to work. The gap grows with the length of the run: it is small over two years and large over twenty.

*A flat yearly return is an arithmetic illustration of compounding, not something a real backtest produces, and not a projection of any strategy's returns. Fincanva provides no financial advice — see [Is this financial advice?](/docs/investing-theory/is-this-financial-advice).*