Power of Compounding

“Compound interest is the eighth wonder of the world. He who understands it earns it and he who doesn’t pay it.” - Albert Einstein

Compounding is the first step towards long-term wealth creation. Compounding allows you to earn interest on your principal and on the interest that you reinvest. It helps you build a large corpus over time with the smallest of initial investment. If you are young (20s), take advantage of the compound interest phenomenon.

A question came to be me about why not invest and have a loan and make a cut between the two. Logically speaking I prefer debt free scenario as it keeps me worry free and allows me to take calculated risks. If you are audacious and you believe you will out smart the debts due to compounding go ahead by all means. This works only if you have time to play with. The prerequisite for creating serious wealth is to start early, have patience and not get swayed by daily market movement

If you are starting a late (60+), still compounding works but it can work only so much. In such a case, you can start compounding for your children instead of investing on instruments. Whether you are alive or dead the phenomenon of compounding will keep it on. I have made mistakes in this area by investing on education plans and college funds etc. What a waste?

As I am slowly recovering from all my mistakes now, I have decided to add a small fund on my children name and allow it to grow. They are 15 and 11. The simple rule is, every year we will add a small corpus to this fund. A rebellious thought but i am sure it works like a charm from the principles point of view.

A simple example: When considering schooling for children one thing I did look into is school fees. An international school in Singapore costed me around $50000 per year and just multiply it by K-12 years for two children. I will be tired working for this tuition all those years. Looking back, I took a fabulous decision of moving to India. The only mistake I did was I did not harness compounding.

Now that they have time at their hands, may be I can make compounding work. I am not against them going to expensive universities but I wonder if there is a point to it. As a mother I discourage them from wasting time in such activities. I have noticed that skills are more important than a degree when it comes to work. I haven’t used my degree(s) anywhere other than gaining employment and migrant VISAs. When you are an entrepreneur and you work on internet, I don’t know if they matter at all.

No one cares how much you scored in biology or chemistry. Everyone asks, can you solve my problem? If need be, my kids can employ someone from these big universities with all the compounding they can harness. Food for thought!

There is time to recover from your mistakes and the time is NOW. Not just money, apply compounding for skills, time, health and the way you look at your life will change drastically.

🥂to compounding!