power of compounding
If you want to go around the earth and start with 100 metres on first day and double the distance every day, How long do you think it will take?
1 year?
10 Year?
Let’s find out, within 19 days you would have covered 39,321 Kilometers, while the equatorial circumference of Earth is about 40,075 km. you would have travelled around the world in less than 20 Days.
But, What if you stop after 10 days? You would have hardly covered a little less than 77 km.
This is the power of compounding. Power of compounding can help you to create a great wealth as well.
How to leverage the power of compounding for maximum benefit to create a wealth!
Start Early & Invest Regularly
Key ingredient to avail the benefit of power of compounding is TIME. You need to keep investing regularly for long term. The sooner you start investing in your life, more wealth you will be able to create.
For Example,
Nisha invests 5000 rupees every month since the age of 25, while Nilesh invest 7000 rupees every month since the age of 35. Both of them kept investing till the age of 60 years with the objective of creating a corpus of retirement.
By the age of 60 both would have invested 21 Lac rupees. Assuming a return of 12%, How much wealth both of them would have created for their retirement?
Nisha will accumulate 2.75 Crore rupees, while Nilesh will get only 1.19 Cr rupees, which is 59% lesser than Nisha’s corpus.
This is why starting early is important.
Challenge:
"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times.” Bruce Lee
One requires a lot of discipline in doing the same things again and again for long term, though it is the most proven method to create a great result in any area.
To avail the benefit of the power of compounding the biggest challenge is to keep investing every month with discipline. And as human being, most of us lack discipline, when it comes to following he same routine with the absence of instant gratification. For creating wealth in long term, one needs a lot of discipline to start early and keep investing regularly.
Solution:
Start a SIP (systematic investment plan) in Equity Mutual Fund for the long term to automate the process of investing. You need to exercise your willpower just once to decide the amount and tenure to start your SIP. The biggest benefit of investing in mutual funds through SIP is that it helps you in investing with discipline regularly. You need not do paperwork or pay every month manually. This automation makes this long-term powerful process of wealth creation easier for you.
So remember, to avail of the power of compounding starting early and remaining invested for long term is the Key.
posted by Raja Bhattacharjee @ July 09, 2022
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