Investing and the power
of compounding
Just as every drop makes the ocean, every penny wisely invested can help in wealth creation.
To know how much time it would take to double your money use the 'Rule of 72'.
Divide the estimated rate of earnings from 72, which will give you the number of years required for the funds to double
Which means an investment, earning 8% per annum, compounded annually will double your corpus in a little over 9 years!
Compounding is also known as 'snowball effect'. It takes effect when your money makes money.
Through compounding you earn returns not just on your principal investment, but also on the accumulated interest, dividend or capital gains over the lapsed investment period.
As the years roll on, the investments continue to grow at a geometrical rate.
There are three key ingredients to leveraging the power of compounding:
Firstly,
have an investment plan.
Something that you understand, that suits your pocket, risk profile and has empirical evidence that you can study.
Secondly,
be patient.
Like all good things, give your investments time. The longer the better.
Finally & most importantly,
stay disciplined.
The key factor is to feed your investment at regular intervals. The more frequent you are the better.
No wonder Einstein called compounding the eighth wonder of the world!