Thursday, May 5, 2011

Magic of compounding - The Millionares Secret

Millionares are not built overnight. Becoming millionare and staying millionare or perhaps become billionare from millionare requires dicipline and master of a trade. There is a very strong invisible natural force which helps us in growing our wealth exponentially and that is called the force of compounding. Most of us either don't know its true benefits or have failed to realize its advantages while doing investments.

Following is given a chart which assumes a one time investment of 1,00,000 bucks at the begining, and then calculates
the terminal amount at the end of the specified periods, having that investment compounded at different rates.

One can become crorepati (10 million) in just 21 years by compounding the above initial investment by 25% every year which is certainly not possible in riskless assets such as Fixed Deposits but certainly possible in Equity investments.

One can also make use of this magic of compounding by following a Systematic Investment Approach (SIP), by investing a fixed amount at regular interval. You can use Microsoft excel to make an investment goal based on fixed annuity savings at regular intervals.

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