Compounding is a very powerful tool in Investing.
Compounding is the process of investing your profit and earnings in a stock again on that stock to even gain more.
You gain more because both your capital (initial investment) and interest (profit) work together to get you even more money which is again invested and cycle goes on.
Now, just take an example you have invested Rs 100 in a stock and it doubles every year for 5 years. Now if you are just taking your profit out meaning that you are not compounding, you will have only Rs 600. On the other hand, if your compounding your interest, you will have Rs 3200. Rs 200 at the end of one year, 400 at the end of 2nd year, 800 at the end of 3rd year, 1600 at the end of 4th year and 3200 at the end of 5 years. A difference of Rs 2600
You see the magic of compounding. By compounding your interest, you do not earn in straight line, rather you earn exponentially. And you can what happens when you compound in the above example.
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