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Monday, August 2, 2010

The Power of Compounding

Compounding is a mathematical phenomenon that basically means the longer you stay invested - and reinvest your earnings - the faster your money will grow!

Therefore, the two important keys to taking advantage of the power of compound interest are:

1. Leaving your money invested in the markets for the long run and

2. Reinvesting your income and gains.

Most of us would like to have a million rupee cash at some point in our life. Most of us also work 40+ hours a week at our job. What little amount we save can and will accumulate over the years, but the odds of reaching the 1 million mark is relatively small.

However, if we take advantage of the power of compound interest, then we can begin realizing our 1 million goal.

For instance, let's say you decide to invest 100 per month in an investment that yields 6% interest compounded monthly, for the next 30 years.

In 30 years, you would have 100,451.50!

That's not too bad, considering you made 64,451.50 in interest.

Now, let's say you kept that up another 10 years ...

You would then have 199,149.06.

In 10 years, you almost double the value of your investment.