The Power Of Compounding

Few years ago I heard a story which changed my life. At that time I was looking at the investing more like at saving - I was just putting some money aside.

Let me actually tell you the story...

The Story Of The Three Brothers

Once upon a time there was a carpenter who had three sons. The carpenter had been working hard all his life and saved some money for his sons. When the time to leave this world has come, he asked his sons to take the money and to use them wisely.

Each of the brothers received $20,000.

The eldest brother spent the money on girls and journeys. An year later he had nothing.

The middle brother wanted to remember his father for as long as possible. He wanted to use the money for years to come. He calculated that putting these $20,000 in the bank at 3.5% yearly interest will give him $700 each year or $1.92 each single day. This means he could buy a sandwitch every day with his father's money and at the end to have the $20,000 again. He was much smarter than the first brother.

The youngest brother was just 18 when his father died. He thought he must first try to make money on his own and decided not to spend the father's money for at least 25 years. He divided the money on 4 equal parts, put them in 4 different mutual funds and basically forgot about them.

When he reached 43, he decided to check his money.

He was a millionnair!

The four mutual funds averaged just 17% average yearly ROI. This turned his $20,000 into $1,013,156.

Patience and compounding are the keys.

More samples of powerful compounding

The higher ROI and the longer period of compounding play much bigger role than your initial spend. If you can achieve 19% yearly ROI instead of 17%, for 25 years you'll be a millionair even with $13,000 invested.

Another way to drastically improve your investment results with mutual funds is to regularly contribute to the them. Starting with $10,000 and contributing only $100 monthly will make you a millionair in 27 years at just 16% yearly ROI (pretty achievable for a good mutual funds portfolio).

If your funds can make 20% per year, then with $10,000 initial investment and $100 monthly contribution you'll make your first million in 22 - 23 years.

Compounding Is The Way

Not everyone is able to invest huge amounts or can trade forex and win 50% or more per year. The best way for the ordinary guy to make fortune is to invest with patience and persistency. The earlier you start, the better are your chances to retire early and rich.

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