Tuesday, May 1, 2018

Power of Compounding

Wherever you invest your money- stocks, mutual funds, bonds, fixed dopiest, bank saving account or any combination of these, the reason behind this is to save money for future purpose and let them an opportunity to grow over the time. A long time period is given to investments with a purpose to provide opportunity of compounding. The power of compounding is such that it converts a few pennies into millions over the time. Because of power of compounding a small sum of money gets an unimaginable size given enough time. Compounding is main reason behind any investment. Compounding helps investments to grow bigger. Compounding is the king.

When you invest your money in any investment avenues, it earns interest. After some time the accumulated interest along with the principal too starts earning interest. This makes the total money bigger over time. This process is compounding. More the time it gets, bigger it becomes because of compounding.

For example you invest Rs. 1,00,000 today for next 25 years. If your investment earns a return of 8% annually. This investment will turn out to be Rs. 68,4847. And if you keep that money invest ed for next 35 years that money will turn out to be Rs. 14,78,534. You can see that in 25 years your money just grew by 6.8 times but when left for 10 more years, it increases by 14.78 times. This shows the power of compounding.

And if your investment manages to earn an annual return of 15% then it will become Rs. 32,91,895 in 25 years. That means your money grow by 32 times in 25 years. Just imagine 32 times in 25 years. More shocking if you keep invested for a period 35 years the same amount Rs. 1,00,000, this money will turn out to be Rs. 1,33,17,552. That means your grow by 133 time in only 35 years.

Is not unbelievable. Yes it is but it is possible. No faking, not any big expertise to achieve it. Just you need to be watchful. This is the power of compounding that it will change your life forever.

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