Power of Compounding works on your money.. But do you?

(The author is the Founder and CEO of Money Avenues, a Wealth Management firm based in Chennai which offers   i.S.M.A.R.T financial plan. Feedback can be sent to ismartfp@ gmail.com) 

Power of Compounding works on your money... But do you?

Power of compounding works like a magic... Of course, only if you allow it to work... Want to look at some numbers??

Story of three friends:

Mr. Smart
Mr. Responsible
Mr. Fun


Generally its assumed that people take higher risks in the early stages of life and reduce the risk levels as they grow old. Same is assumed here...


Each invest Rs 1 lac in the following ways:


Mr. Smart           - at the age of 30 @ 18% PA
Mr. Responsible - at the age of 35 @ 15% PA
Mr. Fun              - at the age of 40 @ 12% PA


At the age 50, lets see how they have done....

• Mr Smart invested Rs 1 lac at the age 30 @ 18% PA and accumulated a mind boggling,

Rs 27.40 Lacs

• Mr Responsible invested Rs 1 lac at the age 35 @ 15% PA and accumulated just about

Rs 8.14 Lacs

• Mr Fun invested Rs 1 lac at the age 40 @ 12% PA and accumulated a meager

Rs 3.11 Lacs

The winner was Mr. Smart because of 3 important reasons:


1. He did not just save..
2. He started investing early on..
3. He got efficient returns..


And look at the difference in the numbers each one made...And it was possible only because of the power of compounding which worked very well in Mr. Smart's favour... And of course he did his home work to take the advantage of the POC..

For the other two, their cases were double edged swords... They not only started late and but also invested in low yields...Though the difference in % returns is not very big, but the difference is too huge in actual returns because of starting early and efficiently...

Moral of the story:

• It's wise to start saving...
• It's wiser to start investing early on..
• It's wisest to invest investing early on with efficient returns...

Only then the power of compounding will be extremely beneficial to your money... An efficient financial planner will be able to guide you to realize the power of compounding for your investments...


If you have missed it...

(The author is the Founder and CEO of Money Avenues, a Wealth Management firm based in Chennai which offers   i.S.M.A.R.T financial plan. Feedback can be sent to ismartfp@ gmail.com)