Do you realize the power of Compounding?

Do you realize the power of Compounding?

In our school days, all of us learnt about compound interest in mathematics. After leaving colleges we have got busy in different professions. Many of us know and understand the power of compounding. But unfortunately many of us have forgotten or do not realize the power of compounding.

The great scientist Albert Einstein had said that the most powerful thing in the universe is power of compounding. Compound interest is the eighth wonder of the world.

Compound interest is same as simple interest, the only difference in it that the interest will be added to the principal amount at a certain amount. The formula of compound interest is

             A=P*(1+r/100)^n

Where A = Earned amount including interest, P= Principal Amount, r = rate of interest, n= time in years

Here I will take one example to understand the power of compounding.

If you have two below mentioned option:

(A) You will receive Rs 1,00,00,000 (One Crore) every day till one month (30 days)

(B) You will receive first day Rs 1 and the second day the just double than the previous day Rs 2 and the third day Rs 4 just double of second day. It means you will receive every day double money than previous day till one month. 1,2,4,8,16,32,64,128………..till one month (30 days).

Now tell me honestly without scroll below which option will you choose from the above mentioned options……?

If you choose option A you will get total Rs 30 crore after one month or 30 days. Seem cool deal…..But if you choose second option then you will get total Rs 1,07,37,41,823 at the end of one month or 30 days. I know you won’t believe this figure. How can a person earn so much money if you start getting only Rs 1 from the day one. In fact you had not thought about this figure. For your believing I would like to mention here the whole calculation.

Day	Amount
1	1
2	2
3	4
4	8
5	16
6	32
7	64
8	128
9	256
10	512
11	1024
12	2048
13	4096
14	8192
15	16384
16	32768
17	65536
18	131072
19	262144
20	524288
21	1048576
22	2097152
23	4194304
24	8388608
25	16777216
26	33554432
27	67108864
28	134217728
29	268435456
30	536870912
Total Amount	1,07,37,41,823

After viewing the above calculation I am now sure now that all of our reader realize the power of compounding. It is the very basic thing before start investing. In fact most of us never realize the power of compounding in the long term.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in