The Magic of Multiplication
Whenever you Invest some amount let say, $100 in any instrument for example a Debt Fund, Giving a Return of 10% p.a.
You Get $10 as Interest for the First Year
But what if you do not Take our this Interest….
You Investment in second year will be $100+$10 which you got as Interest of First Year, and Next Year you will also get Interest on this Extra $10 and Total Interest for the Year will be 10% on $110 i.e. $11
This will get added to your Investment for Next Year and you Investment will be now $100+$10+$11 i.e. $121 and now you will Receive a 10% on this i.e. $12.10 so on... that’s how you Interest get Interest but This might seems very little Difference at this Point…
Think about Leaving it for a Period of say 20 Years…
and Read the Example at the end where you will be Shocked by the Difference in the Amount you can get
How can i Achieve $10 Million
I can Invest $32500 Per Month for 10 Years
I can invest $5200 Per Month for 20 Years
I can invest $2200 Per Month for 25 Years
Or I can Invest $1000 Per Month for 30 Years
NOTE: – I have assumed an annualized return of 18% for arriving at the above numbers.
Or in a One Time Investment...
$2 Million for investment tenure of 10 Years.
$0.365 Million for 20 years
$0.16 Million for 25 years
$0.07 Million for 30 years
Let's Understand a Fact
Suppose A & B invest $5000 per month, earning interest @ 18% p.a. on a monthly compounding basis .A starts at the age of 25 years & B starts at the age of 35 years, Both of them invest for 5 years (5000 * 60 Months = 0.3 Million ) & hold their investment till 60 years of age.
A’s investment would have appreciated to Approx. $70 Million Whereas
B’s investment would have grown to only $10 Million Approx.
Thus, A’s investment would have almost become 7 times more by just starting investing earlier then B, though the amount saved by them is the same