Tuesday, July 15, 2014

The Power Of Compounding

Money multiplies many times over when it is invested and the earnings are reinvested. This is the power of Compound Interest. The sooner you start to save, the greater the benefit of compound interest. Compound interest is the interest earned on reinvested interest, in addition to the original amount invested.
     
            You will get the benefit of compounding when you (a) invest your money in income generating avenues, and, (b) ensure the safety of your capital.

            If you trade carefully and conservatively, it is possible that you may earn less as compared to an aggressive trader. But, your earnings will be steady while the aggressive trader may find himself out of business. Your steady earnings can then be compounded month after month. At the end of five years, who will be the winner - the conservative trader or the aggressive trader ? No prizes for choosing the winner. It is the conservative trader.

There is a saying in Wall Street:
"You can find a bold trader, and, you can find an old trader but you will never find an old, bold trader."
To explain this, bold traders vanish from the scene so they never last long enough to be old traders.

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