Tuesday, 16 March 2010

Through Understanding the Power of Compounding, ANYONE can become rich if they start an investment plan EARLY in life.

It is not so much the increase in future value (FV) over the early 10-year periods of the savings plan, but the increase over the final 10-year period that yields the big bucks.

For instance, if we reference the compounding at 10 percent, 

  • FV increased by $41,338 between years 10 and 20, 
  • while the increase between years 40 and 50 was $721,316.
Thereafter, if you start your investment plan at age 30 rather than 20, the $1,000 a year you spent before that rather than invested will have cost you $721,316.

The greatest deterrent to an investment plan is not so much the fortitude to put aside a small percentage of income, but the willpower not to steal from the fund until your regular employment income ceases. Anyone can become rich if they start an investment plan early in life.


Slow and consistent accumulation through the power of compounding. 

Investing is not about making a quick kill, but slow and consistent accumulation through the power of compounding. 

Sometimes, exceptional results will occur through 

  • the catch-up process of buying underpriced stocks or 
  • excessive market pricing
but unless you really know what you are doing, never gamble on chasing quick returns by being enticed to buy on margin.

Most individuals trading in highly leveraged futures are eventually wiped out by their lack of staying power when exceptional price volatility extinguishes their small percentage of equity. 

  • Losing a bet in which you can be 100 percent right with your choice but 1 percent wrong with the timing doesn't seem very good odds. 
  • Making money is nice, but peace of mind is much more valuable.

Also read:
1.  Uncle Chua's Portfolio & Dividend Income
Here is Uncle Chua's portfolio & dividend income, reproduced here as accurately as was depicted in the book:  http://spreadsheets.google.com/pub?key=r5DhwS2nWTiIAK0pDCIPD-Q

2.  The Story of Anne Scheiber
Maxwell recounts the story of Anne Scheiber, an elderly and thrifty lady who lived in New York and worked for the Inland Revenue Service. When Scheiber retired at age fifty-one, she was only making $3,150 a year. She was treated poorly by her employer and was never promoted. Yet when Anne Scheiber died in 1995 at the age of 101, it was discovered that she left an estate to Yeshiva University worth US$22 million!
How did a public service worker with minimal salary accumulate such a staggering wealth?

3.  *****Long term investing based on Buy and Hold works for Selected Stocks
It sure beats FD rates and it is safe too.

The important lesson here is to realize the power of regular investment and compound returns. When you invest in good things and you invest regularly, your wealth will eventually multiply.

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