Many articles around Compounding being the 8th wonder of the world and it is true. I personally feel that Compounding is an after effect of something more powerful – the financial super power called “Patience”. Magic happens when someone is patient to let the money do the compounding by automating the investment. In short the wonder here is Compounding, the power that makes it happen is called “Patience”.
Read the illustration carefully. By being patient and consistent we end up generating an after tax corpus of 1.93 Crores. This is achieved if we invest 20K per month in EPF (employee provident fund) and do not touch it till retirement.
Some real call outs from the above illustration, in case you didn’t notice.
- How after the 10th year of contribution, the total Portfolio value tends to break away faster from the expectations of what we contributed (or accumulated).
- There are no withdrawals through out the lifetime.
- The longer you hold it, the longer will be the growth and there is no limit to this growth with age. The pattern is same!
- The expectations from us logically is linear, but the investments grow exponentially (well nearly :)).
Finally, what does this tell us – Patience is the Financial Super Power that makes compounding work!
Great analysis, thanks
Many thanks for the kind words.
Best regards,
Gopal.