Read this and you will certainly end up rich!
In this issue:
» 9% growth sustenance a challenge for India, says ADB
» A top short seller cautions about China
» Bill Gross comes down heavily on the US Fed
» Indian markets feeling the heat of shift in fund focus
» ...and more!!
----------------------One Year FREE Access ----------------------
Equitymaster's "Intelligent" Portfolio Tracker just got even better... Sign up for one year, and get the next year's subscription absolutely FREE of charge! Don't Wait! Register NOW!
---------------------------------------------------------------------------
00:00 |
![]() |
|
Imagine two investors A and B. We assume that investor B starts earning at the young age of 19 and decides to put aside Rs 20,000 every year till the time he turns 26. And that's it. He doesn't invest a penny afterwards. Now, let us consider investor A. Unlike B, investor A starts investing Rs 20,000 only after he turns 26. But does so dutifully every year till the time he reaches 65 years of age. Both of them are assumed to earn 10% per annum on their investments.
Now here comes the real shocker. We know that investor B has made only seven contributions while A has made around 40 contributions towards his portfolio. Despite this, you'd be amazed to know that B will end up with more money than A when both of them turn 65. In other words, while A's money has grown around 11 times, B has been able to grow its money a whopping 66 times.
The above example clearly highlights the magic that the process of compounding works on one's portfolio. Just by letting his money compound over a slightly more number of years, investor B was able to make more money than A even though he made far less number of contributions. And therein lies the biggest secret to becoming rich we believe. Investment returns over a long period are not dependant as much on the amount of money one puts aside. They are more a function of letting compounding work its magic by starting to invest as early as possible.
Has the magic of compounding shown its results in your investments? Share your views with us or you can also post comments on our Facebook page.
01:24 |
Chart of the day | |
![]() |
01:55 |
![]() |
|
He believes that fixed investments that now account for 70% of the Chinese economy are now tied to its real estate. We are not surprised to know this given the excessive lending that Chinese banks have resorted to in the past year. But what is worrying is that Chanos predicts a burst in China's realty bubble anytime soon. One that could shrink growth in the world's fastest growing economy. In such a scenario, investors globally would look for safer options in emerging markets. And India could well be the haven if the regulators here keep a strict oversight on bubble like conditions across assets.
02:37 |
![]() |
|
Whatever it is, the Indian markets are bearing the brunt of this shift in fund focus. But then the Indian markets were also the ones who witnessed the boom in prices when these funds were pouring money into India. That is the innate problem of foreign fund flows. When they go away, they lead to market falls.
03:13 |
![]() |
|
This is exactly what is happening in the US right now. By keeping interest rates at near-zero, the US central bank is robbing today's savers to pay for tomorrow's prosperity (even that's not sure). In fact, if you were to believe Bill Gross, the chief of the world's biggest bond fund, he has criticized the Fed for its policies.
As he has written in his latest note, "A low or negative real interest rate for an 'extended period of time' is the most devilish of all policy tools. And the asset class holder that it affects, or better yet, infects, is the small saver and institutions such as insurance companies and pension funds."
This is criminal. But then, central banks are generally kept out from the boundaries of crime, even if it is done against the poor savers.
03:57 |
![]() |
|
The political will also seems to be lacking. Especially when it comes to implementing long term reforms. Indeed, if India's government is able to widen its scale of vision and plan well, it will go a long way in making sure that the country's growth stays on track. Further, the infrastructural activity that takes place has to be after careful planning. It must not be a haphazard attempt that will only provide incremental benefits. Unless, India does away with all such constraints, achieving a consistent 9% growth in the coming years will certainly prove to be a challenging task.
04:40 |
![]() |
|
04:55 |
Today's investing mantra |
Today's Premium Edition.
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
- A stock with strong moat is currently trading near 5-year lows.
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
Equitymaster requests your view! Post a comment on "Read this and you will certainly end up rich!". Click here!
17 Responses to "Read this and you will certainly end up rich!"
sid
Feb 4, 2011Can anybody pl mention such schemes where copound int. is given for 20 or more years?
N.M.R.Shreedhar
Feb 4, 2011I think there's some mistake--if interest rate is 10%,investor A earns more than Investor B at age 65. However, if interest rate is around 10.25%, then investor B earns about 1000 more than investor A at age 65-- please clarify. regards
krupa
Feb 4, 2011i want to know the most standard and popular firms where i can i have less risk while investing in funds.
Jitendra NAik
Feb 4, 2011Its a good text useful to young people who have just entered earning period
sameer
Feb 3, 2011If one is capable of investing 20K at the age of 26 he will keep investing exceedingly more amount as his income grows till he reaches and not the same amount like a moron.
sethu
Feb 3, 2011Compounding certainly does miraccles.But you have to be correct in your investment at the first instance.
Inflation is not that bad in USA compared to India ,In india it is too bad The items i consume Inflation has been more than 70% in last one year.Interest rate 8%.Price indices published by indian govt.is totally useless and incorrect.Except telephone and rail travel rest all have gone up.
eageme
Feb 3, 2011Yes it is truth that now infrastructure is bottleneck for growth beyond 8%.Political parties do not have will to do anything for public.And who can guarantee long term reforms will remain in place with every 5 years,at centre parties keep on changing?
eagerme
Feb 3, 2011The power of compounding.true,but look at india scenerio.
Nobody starts earning at the age of 19.And that too rs. 20000 is big sum at the starting of earnings.
And what about the fact that every body in my family are above 19. What now?
D BHATTACHARYA
Feb 3, 2011Sir,
The methodology may be true, but can not be blindly followed to get one rich. For example, I have, during the span of last 6 months twice purchased and sold Cipla with a view to book profit. Had I remained idle as orthodox long term investor, I would be at loss or without profit. Similar were the case of IDFC, L&T etc. But where I did not book profit for the greed of earning more, I am booking loss today. I think you are simplifying the intricacy of market, the behaviour market shows in different cycle. We expect in-depth analysis from you because we are novice.
Regards.
Vijay
Feb 4, 2011Dear All,
Its truly a global economic news updated with IT use, in a very good point to point in very sort para.
Thanks,
Vijay Batavia