The power of compounding to be reached via investment. An investor does not only mean to invest just because they are having access to money. They don’t put it anywhere in the name of investment.
Investment should be done where it generates a compounding return. As it was said by the great scientist Albert Einstein that compounding is the eighth wonder of the world.
Compounding is the eighth wonder of the worldThe great scientist Albert Einstein
Let’s understand the mechanism of Power of Compounding in investment-
It generates a return over the return which has been generated on money which was invested. Means if somebody invests $10,000 and with basic the return of 10% annually then under the mechanism of compounding. In the first year, the money will become $11000 in 2nd year, it will become $12100 and in 3rd year, reach $13310. It keeps on increasing its value in the same way.
In the first year you get amount of $1000, in the second year you get $1100 and in the third year it reaches to $1210 dollars, instead if it would have been kept in the bank then the return could be $1000, $1000 and $1000 every year with the same return of 10% annually.
What I believe is if somebody only beats inflation then remains well they are, if not then downgrading. In either of the cases you cannot live a better life, therefore an investment must be in a way that can generate return in compounding way so that it can take you to the next level of living good life via investing with great mechanism and power of investment and this is possible if you start investing wisely.
Now understand the dominant factors which affect its work
The more uninterrupted time you give, more efficiently it works with high pace to generate a good return. The frequency of withdrawal on a regular basis or fearfully must be nil. As some of the investors keep on moving their corpus from one fund to another just because some funds perform good and some not at a point of time. An investor must give decent time to their investment to grow the money instead of interrupted time.
Just imagine what happens to the employee who works for multiple departments from one to another with multiple work responsibilities what happens to them? Forget about efficiency they even can not work effectively. It’s very far to be efficient if they are not given a decent time for a particular work. That’s the reason all the corporate and rich people employ for the particular domain where the employee belongs to. So that the result would be in compounding. I don’t understand if rich people can get the benefit from this compounding mechanism, then why not others?
The mechanism of compounding gets keek to generate more return in comparison to the more money added towards investment. I.g if initial investment was $10,000 and later on $2,000 added to the portfolio now it becomes $12,000. Here what compounding used to work for $10,000 will work for $12,000 and will increase the amount of compounding value.
With the given factors it’s very understood that you can put together the time and the money together to your portfolio. It simply implies it will take to the next level of power of compounding.