Power of Compounding

The Power of Compounding – Why Einstein Called It The Eighth Wonder Of The World

The power of compounding is something that most investors do not consider until they are in retirement. It can result in huge losses if you’re not careful. The longer you invest, the higher your returns will be. In fact, Einstein called the power of compounding the eighth wonder of the world. It can be overwhelming for those who start investing early. Then, you can take advantage of the money that you have been earning.

The Power of Compounding can be beneficial for your money in many ways. When you’re younger, you can invest a single cent in the stock market and double it within a year. Then, at 65 years old, you can have twice as much money. But you have to stick with your long-term plan if you want to reap the rewards of the power of compounding. It’s a powerful strategy that will work for you.

It is the most powerful investment tool that you can use. If you have a modest income, you can increase your savings by controlling your expenses. Try to set a budget so that you can see where you can cut costs. Keeping your spending under control will boost your savings and investments. But if you’re retired and have unlimited income, you can save even more money by investing in your savings.

It can help you grow your savings. By investing early, you’ll be able to take advantage of it. The snowball effect of compounding will add fuel to your savings. So start saving now. You’ll be glad you did. You’ll reap the benefits of the snowball effect later. So, don’t wait to retire. Invest now. And don’t forget to save as much as you can.

The Power of Compounding also works when you are investing in Mutual Funds. The amount of time you invest in Equity Mutual Funds can grow several times. The earlier you invest in Mutual Funds, the more you’ll be able to benefit from the compounding process. If you have enough time to invest, you can create a substantial amount of wealth with a modest investment. When you’re investing early, you’ll gain more experience, and your knowledge of the Equity market will be invaluable.

Investing early is a great way to take advantage of the power of compounding. By investing early, you can benefit from the compounding effect of interest. It doesn’t matter if you’re in the market for a home or an education, you’ll build a considerable corpus over time. It can work for your retirement, but you should invest for the long-term.

Magic of Compounding Example

Eg: Let’s take an example of the benefits of investing early. Mayur and Riya are 60 years old and are friends. They were discussing about the investments they had made when they were young. Both the friends invested different amounts of money for a period of 10 years i.e. Mayur invested ₹ 15,000 every month whereas Riya invested only ₹ 5,000 every month. Mayur started the investments when he was 35 years old till he turned 45 while Riya started investing when she turned 25 years till, she was 35 years. Both Mayur and Riya continue to hold their investments till date. On her 60th Birthday the value of the ₹ 6 Lacs invested by Riya had reached ₹ 1.97 Crores, but Mayur’s investments of ₹ 36 Lacs had only become ₹ 1.49 Crores, even though Mayur invested more money than Riya. How is this possible?

This happened because Mayur started his investments when he was 35 and Riya when she started her first job at the age of  25. At 60, Riya’s money was invested in the avenue since she was 25 i.e. for 35 years while Mayur’s funds remained invested only for 25 Years. Riya’s money got compounded for 10 extra years and hence made a lot of difference today. Hence, it is said, starting early is always beneficial for accumulating significantly higher returns than starting to invest at a later stage.

Hence investors should start early and enjoy the magic of compounding. If you need any assistance on Compounding, How To Invest In Mutual Funds or anything else please feel free to contact Wealth Baba – Financial Planner & Investment Advisor in India. We will try to help you out in the best possible way.