We all understand the importance of compounding and its power in the long run with parlance to our wealth, skills, relationships, and overall efforts in our lives. Whether it is learning a new language or learning to use those roller blades. Everything needs time. It's nothing new. But then it's easier said than done. A large chunk of investors due to greed, apprehension of losing money, a mindset of immediate consumption and many other reasons tend to lose their sight of such a powerful concept.

The power of compounding works by growing your wealth exponentially. That said the growth must be steady, tenure must be long, and investments must be diversified.

Process of investment itself must be simple and easy.

But that's not the case. Each investment category has a different risk, return structure and maturity cycle. Few have a direct relationship with market trends like inflations, exchange rates etc. while few are less volatile and based on an asset like gold or an underlying contract. While short term goals might need high returns in short time with high risk, its just the reverse for long term goals. Moderate returns with minimal risk over a considerable amount of time can yield excellent returns as well.

But one aspect that is equally applicable to all and which defies all these odds of Investing and radically changing market equations is the power of compounding. What is compounding? Benjamin Franklin once wrote somewhere: "It is the stone that will turn all your lead into gold. Remember that money is of a prolific, generating nature. Money can beget money, and its offspring can beget more."

Compounding is a simple yet a very lethal concept. Why lethal? Because compounding is similar to a multiplier effect since the interest that is earned by the initial capital also earns an interest, the value of the investment grows at a rapid and geometric rate. But this needs two things, one is time, and another is patience to hold upon the investments for the long haul.

Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”. It's the “Y” in the compound interest equation and not the “r” which is the magic element.

Hypothetically If offered ready cash of $2Mn or a mysterious penny that doubles itself every day do choose the penny. Because you will exactly end up with $5.36Mn in a short span of 30 days This is indeed the power compounding.

While classical thinkers stress upon starting early, modern day AI & ML enthusiast like us suggest that it's never too late to start investing and building a goal-based corpus leveraging the power of compounding. With a focused goal, right investment type and correct assessment of risk-reward appetite the lost time can be made up for and if you are already an early starter nothing better than that.

Our AI powered recommendation engine is just the perfect co-traveler you need in your journey of compounding.