Suppose you invest $10,000 in an income-producing asset. At first, calculating the return is relatively simple: You take the current value of the investment + all cash distributions received − original investment = total profit or loss But the calculation becomes more complicated when you use those distributions to purchase other investments. The return generated by the original $10,000 is no longer contained in a single holding. It has begun to spread across the portfolio. The original investment may still be producing distributions, but those distributions may have purchased shares of a second investment. That second investment may then generate its own distributions, which could be used to purchase a third investment. Over time, the original capital creates a chain of assets and income streams: Original capital → distributions → new investments → additional distributions → more investments This is the income snowball. The challenge is that a brokerage account normally tracks each holding separately. It does not automatically show that part of the value in the second or third investment originated from distributions produced by the first investment. To measure the return on the original $10,000 accurately, you would need to track everything that capital eventually produced, including: The current value of the original investment; All distributions withdrawn or spent; The current value of investments purchased with those distributions; Any income generated by those new investments; and Any realized gains or losses along the way. The total return attributable to the original capital would therefore be: Current value of all connected investments + cash removed from the portfolio − additional outside capital contributed − original $10,000 Once distributions are reinvested elsewhere, the return is no longer just the performance of one security. It becomes the performance of an entire family tree of capital created by the original investment. Very few people share this level of detail one it's complicated and time consuming the closest I have seen is @perryf who broke down all his holdings if you are into income investing and you want to see the income snowball in about as much detail as you can in a long form video check out his latest video. https://www.youtube.com/watch?v=yeU3jA43Lb4&t=4748s
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