What is so special about this quote & How Can The Power of Compounding Helps The Growth of Your Money? This will bring us to the Introduction to The Power of Compounding
What is The Power Of Compounding?
The Power of Compounding is a snowball effect where your investment will generate earnings & it will keep adding as the year goes on. Just like the Quote from the Founding Father of the United States, Benjamin Franklin understands The Power of Compounding well.
To make it easier to understand, take a piece of paper. It can be a receipt for the drinks you just ordered or it can be a piece of paper at your work desk. Now try to fold it. Keep folding it until the maximum fold. Look at how thick that paper is. I tried this multiple times. My maximum fold is at 7. If you are able to reach the 7th fold, your paper will be as thick as a note book. If you are able to fold the paper 50 times, the thickness will actually covers the distance between the Earth & Sun.
When I started to explore The Power of Compounding, I actually felt the same. It is impossible to reach the Sun after 50th fold. You can watch this video before you proceed further for better understanding.
How Can It Help You To Grow Your Money?
Lets look at the chart below & you will understand further.
Lets said you start to invest RM10,000 in Fixed Deposit with 3% return. In 24 years your money will double & on the 48th year, you will have RM40,000. Thats too little? OK lets look at 12% then. If your investment return is at 12% per annum, you are able to double your money on the 6th year & on the 48th year, you will retire with RM2,560,000.
Bare in mind I am using RM10,000 as the base amount. What if you keep investing RM10,000 for the next 40 years? You can refer below for the calculation :
Yearly Investment : RM10,000
Period : 40 Years
Annual Interest : 12%
Total Investment (40 Years) : RM400,000
Compounding Interest (40 Years) : RM7,760,893
Total Investment + Return : RM8,160,893
Invest RM10,000 every year & your compounding interest is RM7,760,893. It is honestly a good amount of money if you are looking for long term investment.
Still not convince with The Power of Compounding? Recently I have read QL Resources past Annual Report. I find their Chairman Statement to be interesting :
Up until today, many people are still questioning “The Secret” of getting rich. The fact is, “The Secret” is always right in front of you. There is no shortcut in life especially when it comes to wealth building. It requires patience & discipline to get there. Wait no more Grasshoppa. Its never too late to start & there is no tomorrow for you to wait. All you have to do is to start your Financial Planning & you will get there for sure. If you have no idea where to start, you can start by reading my post on What Can You Invest With RM1000. You will definitely get some idea from there.
Now….. Its Time To…..