Compounding is the magic formula to get rich fast. It makes your interest money go up more and more as it compiles interest, so you end up with more money faster. There is a reason Einstein is said to have called compounding “the eighth wonder of the world,” because it’s so amazing. Investing in wealth-building stocks is one of the best ways to compound your money.

Compounding exponentially increases the value of your money over time, even if you don’t increase your investments, because your interest grows interested (your money keeps making more money).

You will understand simply with this meme. (but 21 din me paisa double rajubhai ke siva kahi nhi hota.)

The key to fast-tracking financial freedom is to speed up compounding by making

and investing as much money as early and frequently as you can.

Here’s how it works. As a stock increases, the value of any money invested in that

stock increases by a certain percentage. The growth is known as interest. If the

stock keeps going up, your original contribution and past interest keep

growing. Over time, the more money you invest and the more the interest grows, the

faster your money compounds. It looks like a curve, as you’ll see in the graphs on

this page.

Of course, the earnings (or losses) of the stock market can vary wildly from month
to month and from year to year, but over the long term, many economists have found
that the actual money returns (meaning returns adjusted to account for inflation and
stock dividends) of the Indian stock market average between 7 and 9 percent per year.
However, when it comes to estimating potential stock market returns, it’s better to be
a bit more conservative, so for this reason, I’ll be using 7 percent as the estimated
the stock market rate of return throughout the course of this book.

For the sake of simplicity to illustrate the impact of compounding, let’s say the
market grows by 10 percent in a given year. If you invest $100 and it grows by 10
percent, you will have $110 at the end of the year (10 percent of $100 = $10; $100 +
$10 = $110). If the market grows by another 10 percent the following year, you will
earn 10 percent not only on your original $100 investment but also on the $10 return
you earned the previous year. This means that at the end of the second year, you
would have earned an additional $11 (10 percent of $110 = $11) for a total of $121.
This is one of the craziest things about money and compounding: $1 or 1
percent might not seem like a lot, but it can have a massive impact on how much
money you have over time thanks to compounding. To illustrate, let’s look at what
happens to that $100 if we keep it invested at 10 percent annual growth for forty
years, without adding any more money to it.

Yes, that’s right. That original $100 investment (aka your principal) will be worth
$5,370 in forty years, and you didn’t even contribute any additional money to it!
That’s a 5,270 percent increase! If you continue to add to your principal (which is
what you typically do when investing for retirement, since you invest more at least
every month), that money will be worth even more. Even if you add only $1 per
month to your original $100 contribution, you’d have deposited a total of $480 over
40 years, but it would be worth $11,694! Awesome!

Now you know why Albert Einstein said compounding is the 8th wonder of the planet.