The 8th Wonder of the World: How Compounding Makes You Rich

You have heard the advice: "Start early." But do you understand the math behind it? Compounding is not linear; it is exponential. The human brain struggles to comprehend exponential growth.

The Tale of Two Friends

• Ramesh: Starts investing ?10,000/month at age 25. Stops at age 35. Total Invested: ?12 Lakhs.
• Suresh: Starts investing ?10,000/month at age 35. Continues till age 60. Total Invested: ?30 Lakhs.

At age 60 (assuming 12% return):
Ramesh has: ?3.5 Crores.
Suresh has: ?1.9 Crores.

Ramesh invested less than half of what Suresh did, but he ends up with almost double the money. Why? Because his money had 10 extra years to compound. This is the cost of delay.

The Rule of 72

Want to know when your money will double? Divide 72 by your expected interest rate.
FD (6%): 72 / 6 = 12 Years.
Nifty (12%): 72 / 12 = 6 Years.
Small Cap (18%): 72 / 18 = 4 Years.

Action Plan

Do not wait for a "large salary." Start with ?500. The time is more important than the amount.