The power of compound interest is most relevant these days when it comes to managing personal finances. If you’re investing with time on your side, then compounding is a powerful tool for creating long-term wealth. By earning returns on your returns, you can build a surprisingly lame portfolio w. only a small contribution upfront.
The sooner you start, the more your returns will multiply. For example, a 21-year-old investing Rs. 5,000 in a managed fund today and earning returns of 896 a year would have over Rs.147,000/- if they retired at 65. Compare that to a 50 year old investing the same amount with the same returns. In the 15 years to retirement, they would only have accumulated around Rs. 15,800. That’s why it can make sense to start investing early.
Keep the mantra simple
- Reinvest your income. Start by asking your fund manager to reinvest your investment earnings, rather than taking them in cash.
- Use a regular investment plan. By investing in your managed fund every month, you can build up a sizeable nest egg surprisingly quickly. By setting up a direct debit or an automatic funds transfer as soon as you’re paid, you can create a set-and-forget investment strategy that keeps on working year after Year.
- Put time on your side. The longer your money can work for you, the better compounding works.
- Be patient. Do not touch the money. Compounding, only works if you allow your investment to grow. The results will seem slow at first, but persevere. Most of the magical compounding returns comes at the very end.
This is a classic lesson in leverage. In this case, the “lever” is time: As the length of time increases, the power of leverage increases exponentially…
About the Author:
Rajiv Goel , bum in 1968, in Mumbai, in a family of traditional textile traders studied in a local Convent school named “Campion” and completed his Commerce graduation from H R College Initially, first 5 — 6 years he was a pad of the family business following which he started taking interest in the stock markets which were still in a nascent stage in India.
Even before he completed his graduation, he started his own Sub-Oolong business in the Bombay Stock Exchange using his street smart knowledge acquired through venous sources He learnt the ground rules of the business in the era of Harshad Mehta and Ketan Parekh.
In 1995, he established a proprietary company called “Bombay Capital Services “, a financial advisory firm which advises dents on the fundamentals of small savings. These include sublets like PPF, Gold, Equity, Mutual Funds and similar asset Classes.
Based at New Marine Lines, the company has a ten minute proximity from the Churchgate and V.T stations making it convenient for the client to access. Over the past 20 years, the company caters to more than 1000 dents including HNI’s, Corporates/ Bank, Retail Investors. The company has a dedicated team and research desk which advises clients on Equities Commodities, Forex, Mutual Funds and Insurance. Presently, it has an office in Mumbai and Delhi and plan to open up branches shortly in Kolkatta and Chennai.