The power of compounding: Get Richer Slowly

Does compounding rely on your investment returns? Oh YES! Your contributions count but it is the power of compounding that leads to a wealth snowball. Want proof? Just look at these numbers..

5 key ideas

What is Compounding?

Compounding is the process whereby interest is credited to an existing principal amount as well as to interest already paid. Compounding can thus be construed as interest on interest—the effect of which is to magnify returns to interest over time, the so-called "miracle of compounding." When banks or financial institutions credit compound interest, they will use a compounding period such as annual, monthly, or daily.
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The Power of Compounding

At first sight, compounding does not seem to be remarkable. However, looking at compounding in action, you will observe a few things. Consider, for example, investing in stocks at an average real return of 6.8%. (It is inflation-adjusted.) During the 1st few years, compounding would not definitely do much. After 10 years, your initial investment would nearly double. After 16 years, your initial investment would triple, and in 20 years, it will quadruple. By year 40, your incomes will be greater than your initial funding each year.
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Financial Success: Start Early

Financial success is established on proper habits practiced over a long period of time. You can nonetheless have an impact on your financial future if you are beginning later in life, however you will then have a ton of work to do. This is due to the magic of compounding, that can help you create a magnificent wealth snowball.
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The Importance Of Saving

Your investment returns are less essential than your investment contributions. That is to say, how much you invest matters more than where you invest. The greater you contribute, the more there is to compound.
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Make Compounding Work For You

  • Start early. The earlier you start, the more chance you have to make compounding work for you and the wealthier you can become. Next to beginning early is starting now.
  • Stay disciplined. Make regular contributions to your financial savings and retirement accounts. Try to extend your deposits with time. Your aim is to generate a giant saving rate.
  • Be patient. Don't use your investments. Compounding only works if you let your cash grow.
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