Power of Compounding

Power of Compounding

“Compounding is the 8th Wonder of the world. He who Understand it, earns it; he who doesn’t, pays it.”     – Albert Einstein

No matter what you learn, what strategy or tactic you employ, success comes as the result of the Compound Effect.

What is Compounding?

  • Compounding interest is interest on interest when money you earn starts earning money. It is the result of reinvesting interest, rather than paying it out, Here your money working for you.
  • Compounding is the easiest way to become wealthy.
  • The early you begin investing, the more time your earning have to compound.

You know that expression, “Slow and steady wins the race”?

I know you heard a story about tortoise and the hare then be the tortoise of this game.

The Compound Effect is the principle of reaping huge rewards from a series of small, smart choices.

The majority of people subscribe to some of OTT Plateform services like Amazon Prime or Netflix that rupees leaves our bank account we hardly even notice. Just think if that rupees put in to compounding effect how much money you will get when you retire after 40 or 50 years on some percent interest.

Example of Compounding Effect:

If you were given a choice between taking ₹ 50,00,000 in cash or ₹ 0.01 that  double in value everyday for 30 days, Which would you choose?

I know you will choose second option because you read it before somewhere but think about it that ₹0.01 will lead to greater wealth it well become ₹53,68,709.12 In this example we see why consistency over time is so Important. The beauty of the Compound Effect is in its simplicity.

Compounding Effect:

₹1000 invested at various rates for various number of years.

Years10%15%20%25%30%40%
3₹1331₹1521₹1728₹1953₹2197₹2744
5₹1611₹2011₹2488₹3052₹3713₹5378
10₹2594₹4046₹6192₹9313₹13786₹28925
15₹4177₹8137₹15407₹28422₹51186₹155568
20₹6727₹16367₹38338₹86736₹190050₹836683
25₹10835₹32919₹95396₹264698₹705641₹4499880
30₹17449₹66212₹237376₹807794₹2619996₹24201432

Here, you can see that ₹1000 becomes ₹2.42 Crore in 30 years at 40% CAGR (Compounding annual Growth Rate).

By Ankit Talaviya

References: The Compound Effect by Darren hardy.

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