They say slow and steady wins the race. And this oft-repeated cliché has been proved true in more ways than one. And this holds true when it comes to getting wealthy as well.
There are perhaps very fewer ways of getting rich quick. But do you know there's also an alternative and steady way of reaping enormous return on your investments bit by bit? And that is the power of compounding!
Just do a simple math and take a look at the following stats to see what wonders the power of compounding can do to your money over a period of 10 years.
If you had invested Dh100,000 at a compound interest rate 10 per cent, in one year your money will grow by Dh10,000 to Dh 110,000; after two years it'll be Dh121,000; in 3 years it'll be Dh133,100; in 4 years Dh146,410; in 5 years Dh161,051; in 6 years Dh177,156; in 7 years Dh194,871; in 8 years Dh214,358; in 9 years Dh235,794; and in 10 years your Dh100,000 will grow to Dh259,374 -- shooting almost 160 per cent.
On the other hand, it would have grown to just Dh200,000 in 10 years if calculated on the basis of simple interest.
"The power of compounding is amazing. Compounding growth at 12 per cent per year doubles your money in 6 years, at 10 per cent in 7.2 years, at 8 per cent in 9 years. Cash deposits paying 2 per cent double your cash in 36 years. If you are 36 now you would double your cash by age 72. Invest it and for $1000 invested, you would have $32000 at 72 -- if it grew at 12 per cent average per year," says Steve Gregory, Managing Partner, Holborn Assets, Dubai.
Sitting at the core of compound interest is the fact that, unlike simple interest, the principal amount keeps on changing over the period of loan (borrowed or lent) or investment, say experts.
And therefore the longer the number of years of investment the greater is the return.