The magical power of compounding never fails to work in your favor over years.
From balancing income and expenses to paying bills on time, we are now half way through understanding the whole concept of financial well-being. All of that we have learnt by now mostly revolves around a short/defined time span. So now its time to move beyond and look at financial well-being from a long-term angle.
Dream big with Long-Term Investments
Lets say, you are am 28 years old and a father of 3 year old child. You
and partner earn approximately Ten lac per annum, combined. At present, you are free from any liability and plan to save for your child’s education over a horizon of 15 years. In such a scenario, Long-Term Investments are one of the sweetest and loyal relationships you can move ahead with.
Reap the benefits of Compound interest:
The most apparent and significant advantage of investing on a long-term basis is the potential to make considerable gains through compound interest. Unlike “Simple” interest, which is calculated on the original or the principal amount of a deposit, compound interest is tallied after combining both the principal and the interest accumulated. In simpler terms, compound interest is “interest on interest.” The effectiveness of compounding is visible over a long-term period when the numbers start to balloon exponentially.
For example: If a person starts saving 15,000 per month continuously for 15 years at an annual rate of 10%, the overall amount will become 62 lakhs wherein the principal contribution would be 27 lakhs.
Get over short-term volatility:
Financial markets, being dynamic in nature, keeps altering over time.Therefore, a saving or a short-term investment, which once looked gainful, may prove to be a lost cause at a given time due to market volatility. It’s best to consider a long-term view while investing. The value of stocks and shares can fluctuate in the short term, and if you need your money, you may have to sell your investments when markets are low. Trying to predict and profit from short-term movements is a risky strategy even the experts struggle to get right.
It’s quite an interesting process – try and see yourself.
To be continued…