It all begins with a simple calculation.
You are home on a rainy Sunday afternoon, looking at the flashy calculator you found on sale last month for $12 at the local buy n’ save. It was a good buy.
You find the percentage button, and try to decipher how it all works.
Before long you are calculating percentages like a pro.
An hour later, you stumbled across an idea everyone with a calculator on a rainy Sunday afternoon stumble across. That of calculating the money you have squirled away at the local bank branch in a fixed term savings account. You recall the rate was guaranteed 7% and even though you are only locked in for 12 months, you decide this money will become your retirement fund. All $3000 of it.
So you start crunching the numbers for ..oh, say 30 years.
In 30 years, you calculate that it will become $22,836.76 Wow! even if you do nothing. Not bad.
A show comes on the television that grabs your attention, and your calculator is absently passed onto the coffee table as you get comfortable, and get set to watch “The most dangerous animals on earth-a ten point count down”.
You watch, but the calculator sits patiently within your line of sight. During one of the ad breaks, you get another idea.
What if you could find some other investment vehicle to grow your money? What if you could find somebody that offered more interest?
You don’t know where you will find somebody willing to offer you this much interest but you try it anyway….30%
30% at 30 years.
Wow. $3000 turns into $7, 859,983! Wow! you hum to yourself. You begin to pay a lot of attention to your calculator, the TV show is up to number one, the most dangerous animal on the planet is……..you don’t care. You don’t even hear the television.
Suddenly a wise voice enters your head. You know its wise, because it told you. It says hey, 30% is not a huge jump from 7%. Yes it is a lot different, but not proportional to the result. $22,000 odd dollars, compared to nearly 8 million is a big difference.
There’s something to this.
You resolve to investigate this. You steady yourself for the figure that will come next, when you try 100% You start crunching.
…after picking yourself up off the floor, you decide to do some research on your favourite resource site Ezine, a search for compounding you find this article.
Surely it can’t be that hard to maintain a level of compounding that’s fairly interesting over a number of years? You reason.
And you know what? You are right. It’s a science. Its simple math and the results are under your control if you want them to be.
Your actions determine your results, why wait 30 years for compounding to work for you?
You can manufacture exceptional results with a some solid research, and deploying that knowledge.
There’s a lot more to Compounding than the math. But look, they say in life, you get what you put in, however, compounding is different. When compounding your own money, as we have seen, that theory is just inadequate to express the returns.
Its time you investigated compounding properly. Keep an eye out for my articles here, or visit our web site right now on the link below for a lot of free insights and open content pages.
(c) Martin Thomas 2005.