The Power Of Compounding

To get the most benefit from your investment it is important that you start to save early. This will help your money grow and you will eventually see that a small investment builds wealth for you.

Compounding is an important concept in the world of finance and has been told to be the eighth wonder of the world. You need to be disciplined and patient and this is what will make your money grow.

How will compounding work for your investments

The most important thing about compounding is that you need to start early. You need to invest regularly and also be patient. The key to the compound is that the earnings that you make with your original investments generate more earnings and this keeps growing over and over again. You receive interest on your original investment and also dividends and capital gains. Thisgetsaccumulatedandthiscauses the money to grow. This happens year on the year and you see that the small investment that you have made has grown many times now.

This is particularly useful if you wish to build a corpus for your retirement. If you start early and invest regularly then the money will keep growing and when you retire you see that you have lots of wealth.

 

Example to understand the power of compounding

Suppose you start with 10000 and this earns 6% interest year on year. If you keep withdrawing your interest gains each year then every year you just have 10000 invested and this grows steadily.

But when you choose the power of compounding you do not take out the invested money but let it grow. This interest and dividend earned on your original investment again get reinvested and this is known as compounding. If the money keeps getting reinvested then say after 20 years the original 1000 will become 20500 if you can stay invested even longer then the money grows to 92000 in 40 years’ time.

Conclusion

If you are looking to build a retirement corpus on Crypto Code or want to invest for along term goal then start with a small amount that you are comfortable with investing and keep investing year on year. Make sure that you do not withdraw any money from it. This will let your money gets reinvested and this will, in turn, make more money for you. This is the reason why even a small investment can take you a long way because of the effect of compounding.