The Power of Compounding
Lesson 4 of 4 in Money Foundations · 8 min read
Compounding is the reason patient investors build wealth.
How it works
When your returns are reinvested, they start earning returns of their own. Over long periods the growth curve bends sharply upwards.
Time is the key ingredient
Someone who invests a modest amount every month from age 25 can end up with more than someone who invests double that amount starting at 35, simply because of the extra decade of compounding. Try it yourself on our SIP calculator.
The other side: inflation
Inflation compounds too. At 6% inflation, prices roughly double in 12 years. Money kept idle quietly loses purchasing power.
What to do next
Start early, stay consistent and avoid interrupting compounding with unnecessary withdrawals.
Illustrative concepts only. Returns are not guaranteed.
Key takeaways
- Compounding means earning returns on past returns
- Time matters more than the amount you start with
- Inflation is compounding working against you