This Compound Called Compounding

Compounding is a very powerful tool that we as investors must employ. Let me share with you this table of an investment with the following details. Let's assume for the purpose of our discussion that this was only a one time placement.



The results were astonishing!



This table will show you the importance of compounding and the greater importance of compounding early. Even though Person A placed Php 10,000 less than Person B, he was able to still get a bigger gain because he was years ahead.

Is it magic? I prefer to think it as a passive income at work. You're letting money work for you, and not the other way around. Money is good. It's even better if money begets money on its own, right?

I've been a witness to how compounding has worked for me. I invested in a mutual fund 4 years ago with only the MINIMUM investment required; and, now its value has doubled. My only regret is that I didn't use that to my advantage! Why? Because no one told me about compounding before!

How I wish I could wring my hands around that mutual fund representative's neck. These people were just sales people. They didn't even dispense any investment advice whatsoever. I have this big frustration sometimes, that the the #1 agent isn't the guy who actually gives sound advice. He's probably someone who's got the most glib tongue.

So when you want to invest already, don't be on the lookout for number 1, look for someone who'll provide you with what you need, not someone who'll sell you what you thought you needed.

I'm digressing.

Going back, let's review, the basic tenet of investment is this - compounding. This is the general rule of the investment universe. If you're not growing your assets through compounding, then it's not an investment at all.

In my next post, we'll discuss the two pillars of investment - passive and active income.

When we've covered all the bases, we will draw up a diagram - an investment house called YOU.