Power of Compounding:

It goes hand in hand with the concept of reinvestment. Power of compounding is essentially an act of 'adding interest on interest,' i.e. the amount of money that is invested while generating earnings from both the initial principal amount and the accrued earnings from preceding compounding periods. Over a period of time, these small extra amounts can add up to a tidy sum. The power of compounding works better with high-yielding investments over the long-term. Thus, power of compounding helps grow to wealth over time.

Power of Compounding Calculator:

The power of compounding calculator uses compound interest formula as a basis. The entire concept of compound interest revolves around making high returns by adding the interest earned to the principal amount at the compound interest rate. The compound interest formula is

P [((1 + i)^n) - 1] , where

P is the principal; I is the annual interest: n is the number of periods./div>
Key rules to enable the power of compounding:

  • The key rule of making it big is to start investing as early as possible. When you start investing early, you can create a solid base for your funds to grow and expand in the future with the help of compounding.

  • Regular investments make your portfolio healthy. Disciplined and dedicated contributions work best to create wealth. To create a healthy corpus and meet your financial goals on time, it is critical to have investment discipline. Investing regularly at the start of your investment journey can ensure discipline.

  • The best way to harness the power of compounding is to raise your investments. But if you have a limited income, you can increase your savings by controlling your expenses. One way to do it is to create a budget and identify areas you can reduce your costs each month.

  • This is the most important ingredient of wealth creation. Power of compounding is felt and seen only if investments are allowed to grow at its own pace. It may seem that investments are not growing, but after years of dedicated and disciplined investment you may be surprised to see what compounding does to your portfolio.

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