We feel we need to give double emphasis to the Power of Compounding, Albert Einstein called this as the greatest wonder of the world. We can give several examples to illustrate the power of compounding. Let us see one of those:
A’ starts investing Rs 50,000 per year at the age of 25. ‘B’ starts investing the same amount every year at the age of 30 When they attain the age of 55, A’s corpus is Rs 61 lakhs while B’s corpus is Rs 40 lakhs @ 8% return pa. The difference of Rs 2.5 lakhs in the amount invested made a difference of Rs 21 lakhs to their wealth.
One of the best stories that illustrate the power of compounding is the Chess & Grain story:
Chess was invented by Grand Vizier Sissa and then he gave it to King in India. The king offered anything in return; Vizier said that he would be happy merely to have some wheat: one grain for the first square of the chessboard, two grains for the second square, four for the third, and so on. The king was amused by the ‘small thinking’ of Vizier and the king could not fulfil the desire of the inventor of chess. Why?
The number of grains on the 64th square would have been 263, and the total for the whole board = 18,446,744,073,709,551,615. This is more wheat than in the entire whole world; in fact, it would fill a building 40 km long, 40 km wide, and 300 meters tall.
So, the moral is if one uses the ‘Power of compounding’ smartly, becoming Rich is not a dream. This is also our 'simple and happy' approach without any overwhelming.
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