You all have heard of SEVEN WONDERS.
The Power of Compounding is the EIGHTH WONDER
The Power of Compounding: Why Long-Term Investing is Essential
Many people refer to the ability of compounding as the “eighth wonder of the world.” Over time, this straightforward yet incredibly powerful idea has the power to transform modest investments into substantial wealth. Earning returns on both your initial investment and the cumulative returns is how compounding operates. Compounding gains strength the longer you let your money to grow.
What is Compounding?
Compounding is the process by which an investment’s earnings are reinvested, enabling it to produce further returns over time. Compounding enables your money to increase more quickly than simple interest, which just calculates interest on the principal amount.
The Time Factor: Why Start Early?
Let’s go over the scenario where:
Person A begins investing ₹10,000 per month at age 25 and quits at 35 (10 years of investment). Total investment is ₹12,00,000.
Person B begins investing ₹10,000 per month at 35 and continues until 60 (25 years). Total investment is ₹30,00,000.
With a 15% yearly return, the outcomes are:
Person A accumulates around ₹1.83 crore by age 60.
Person B invests longer and more, but only accumulates ₹1.71 crore.
Person A’s early start permits compounding to last longer, exceeding larger contributions made later.
Growth of ₹10,000 Per Month Over Time
Here’s a chart showing how ₹10,000 monthly investments grow over different timeframes at a 15% annual return: