What is compounding??? Why does it is the ultimate tool to grow money??

Answer 1

Compounding is best understood by what happens on an investment paying interest. If interest is compounded monthly, your balance grows by 1/12 of the annual interest rate each month. After the second month you are getting interest on the principal and the interest paid in month 1 and so on. As a result monthly compounding is more valuable than annual compounding. I wouldn't describe it as the ultimate tool to grow money though since you would do better investing in a balanced portfolio of stocks and bonds and holding for the long term.

Answer 2

Compounding refers to paying interest on interest at certain contracted intervals like monthly, quarterly, halfyearly or yearly. Why it is considered the best tool is because of its power to multiply faster and steadier over long term. Just to tell you roughly how it works - every day you save an amount which is double that of previous day's - say Re 1 on first day, 2 on second day and 4 on third day and 8 on fourth day etc Like this if you go on you will become millionaire. But it is difficult to maintain the level of savings after some time. But in compounding it only adds further interest to the interest you already earned and over a period the corpus earning interest grows bigger and bigger, so you make more money at the end!

Answer 3

The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Suppose you invest 10,000 into equity shares, The first year, the shares rises 20%. Your investment is now worth 12,000. Based on good performance, you hold the stock. In Year 2, the shares appreciate another 20%. Therefore, your 12,000 grows to 14,400. Rather than your shares appreciating an additional 2,000 (20%) like they did in the first year, they appreciate an additional 400, because the 2,000 you gained in the first year grew by 20% too. If you extrapolate the process out, the numbers can start to get very big as your previous earnings start to provide returns. In fact, 10,000 invested at 20% annually for 25 years would grow to nearly 1,000,000 (and that's without adding any money to the investment)!

"The power of compounding was said to be deemed the eighth wonder of the world - or so the story goes - by Albert Einstein."

Try compund interest calculator for amazing figures ...

Answer 4

Compounding is when your quantity continues to build and multiply on itself. For example the general rule of compound interest is the rule of 72. Take your average interest rate, divide it into 72, and your answer will show you how many years it will take for your money to double. 12% is 6 years. Every 6 years your money will double. If you start with 5,000: In 6 years you will have 10,000, 6 more years you will have 20,000. Then 40,000, then 80,000 then 160,000. The later years is when it really gets good!

Answer 5

Compunding is not the ultimate tool to grow money. It is a tool that provides you a higher return, by adding the interest as specified intervels to the prinicpal and paying interest on the revised principal.

Answer 6

COMPOUNDING IS NOT A TOOL TO GROW MONEY
COMPOUNDING MEANS INTEREST EARNED ON MONEY IN FIRST YEAR ALSO EARNS INTEREST THE SECOND YEAR AND SO ON...

Answer 7

Compounding:
The arithmetic process of determining the final value or series of payments when compound interest is applied.

Answer 8

in simple

it is nothing but adding earned interest into principal for the calculation of interest for subsequent period.

Answer 9

add interest in amount/add benifit in amount will grow more by simple calculation