Compound Interest.

The great Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.

The idea of investing is to compound the wealth over a period of time. Compound interest is an exponential function. They outcome is exponential. 

Rs 1 at 25% per annum for 10 years become Rs 10. If you compound again for the next 10 years, it becomes Rs 10 x 10 = Rs 100.

Let that sink in for a second.

Now that Rs 100 compounded for next 10 years will become Rs 1000.

So in 30 years you can grow 1000 times if you compound your money at 25% per annum.

Just imagine if you compound for ten more years. You will make it 10000 times. If you start at the age of 25. At 65 you can grow your investment 10000 times.

This was all about Compounding money at 25%.

Smart investors have compounded money at 35% per annum for at least past 25–30 years.

In compounding

25% for 10 years is 10 times but 35% for 10 years is 20 times.

25% for 20 years is 100 times but 35% for 20 years is 400 times.

25% for 30 years is 1000 times but 35% for 30 years is 8000 times.

25% for 40 years is 10000 times but 35% for 40 years is 160000 times.

As I told you compound interest is an exponential function. Rate of compounding and the longevity of compounding both can have a very big impact on the outcome. But we all should understand that trees don’t grow to the sky. Bigger the investment lower is the probability of growing at a higher rate.

Warren Buffet is the living example. He is the biggest compounding machine alive.