Compounding and Investing
Have you wondered why compounding works? Because most people who have passed 7th standard ‘think’ they understand compounding, but many do not.
In July, 2006 I had done an article for rediff.com ‘How to become Rich with just Rs. 100″. I have no clue as to how many people read this article – it is reproduced in many places – but if you have the inclination read the comments at the end of the story, you will feel amused.
It is amazing how people will sit and discuss why index fund, mutual fund or ulip, index fund vs. ppf ….blah, blah, blah but do nothing about investing. Read the comments in that article ..or even in the post on Moneycontrol…’Retire Rich Invest Rs. 40 a day’ (which is also the name of my book). I feel like saying….stop talking, do something.
So many people have said..we will not live this long, you have ignored inflation, what a stupid idea,….the comments are worth reading.
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Swami
Subra,
I read your article in rediff and also the comments posted by many readers. I am surprised by some ‘saner’ comments by people in rediff because somewhere down the line, an excellent site like rediff, stopped being a portal to share, discuss, debate ideas. It has been patronised by absolutely immature and rude audience/people. Not just your article, you read the comments for any article. You will find the same set of rubbish peddled as discussion by audience.
I enjoy your article daily though disagree with you on some of the points.
DM
Hi Subra,
Very nice article. The table was highly illustrative of the power of compounding 🙂 but one question is how many people are able to resist the temptation of not touching the already grown money lets say after 10-12 years .. Any insights ? or suggestions how to avoid such a temptation ?
Kavita
Great post mr Subramnyam,
I guess the the concept to percolate requires rigorous marketing to the younger generation by the earlier ones…having said that it is not enuff that the compounding formula is taught in schools what should be done is teaching how that compounding formula is applicable in real life.
I shall teach that to my children thats my promise to them.
thanks for a very simple and great post
Regards
Kavita
Ashal Jauhari
Dear Subra, thanks for sharing a gem. Well, I tried to read all the comments but after some 20-30 I lost it completely.
I tried for compounding with my friends but alas, they all r too smart to invest a tiny sum of 100 Rs. & that too early in their life. 🙂
But I’m not complaining for myself. Already reaping the benefits for starting early, not in a big way but still I’m happy what i’m.
Thanks
Ashal
sukumaran
Had read this post in 2006 itself! I agree with a quote in your book “it takes a complex (thinking?) mind to think of simple things’ – all others are chasing cnbc, ET TV, valueresearchonline.com, moneycontrol,…and many stupid (there are so many you will not believe it!) …LOOKING for NIrvana of immediate gains. Read many of the comments. Rediff is really bad in arranging the comments and also it does not have a comment ranking / rating button. That will help. If there are 140 comments only 4-8 will be 5* rated…and so on. Rediff is really behind times 🙂
King cobra
If you think the comments at the end of every Rediff article represent the thoughts of normal and sane Indian people …
Dr. Bharat
Subra, that’s great article. Very sad that those people couldn’t digest it. They didn’t understand the message within. See the level of superficial thinking. And they are in majority in our democratic country.
Pravin
though the compounding effect is a fantastic tool to teach investing,it is not a practical one.because of regime shocks,rupee itself wouldnt survive such a long period.plus 10% may sound good today.it may have been impossible to get such a return some 100 years back when capital formation and opportunities to compound might have been rare.
it is like taking one variable and extending it to infinity -thats not how run rates work if you watch T20!
What you need is a Monte carlo simulation with lots of variables.even then, a black swan might destroy all the effects of the compounding.
what i want to say is,you havent included the randomness factor which Taleb shows,is more dominanant that imagined
Nagarajan
Read the rediff article … though some of the examples are a little far fetched, the fundamental principle of compound interest is well explained.
Disciplined investment in a PPF account for 15 years would probably be an example easier to understand in today’s scenario
http://www.ppfcalculator.co.in/