Finance and Credit Professional

Let me give you an example to illustrate the power of compounding. Let's say we played a game of golf and we made a friendly bet of 10-cent on the first hole, with the bet doubling on each hole. Would you take on this bet? Now, if you were familiar with the game of golf, you would know that there are only 18 holes, so how much can the bet be on the 18th hole?

Well let's see how the bet increases on the first 9 holes:

Hole 1 10 cents

Hole 2 20 cents

Hole 3 40 cents

Hole 4 80 cents

Hole 5 $1.60

Hole 6 $3.20

Hole 7 $6.40

Hole 8 $12.80

Hole 9 $25.60

At the 9th hole, the bet is $25.60. We are already half way there, so how much could it be on the 18thhole? $100? $300? $500? Let's go on.

Hole 10 $51.20

Hole 11 $102.40

Hole 12 $204.80

Hole 13 $409.60

Hole 14 $819.20

Hole 15 $1,638

Hole 16 $3,276

Hole 17 $6,553

Hole 18 $13,107

As you can see on the 18th hole, the bet becomes a whopping $13,107! When given enough time, the power of compounding can turn very small amounts of money into huge sums.

A more important lesson I want to illustrate is that initially, the money grows very slowly. Even at the halfway mark, it is only $25.60. However, the moment it reaches a critical point, the growth becomes exponential! In fact, between Hole 15 and Hole 18, within just 3 holes, it grows from $1,638 to $13,107, a $11,469 difference!

What does this mean to you? You see when you start your investment program of say $200 a month, initially the growth is extremely slow. However, once it hits a certain period of time, the growth explodes exponentially! The trouble with most people is that when they see the slow growth during the first few years, they lose patience and abandon their investment plan.

How $300 saved every month will grow under different rates of return within 30 years.

- Without the power of compound interest, $300 saved every month would accumulate to merely $108,000.

- At a 5% annual compounded rate of return, $300 a month would grow into $245,609 (2.3 times the principal sum)

- At a 8% annual compounded rate of return, $300 a month would grow into $425,283 (4 times the principal sum)

- At a15% annual compounded rate of return, $300 a month would grow into $1.69 million (15.6 times the principal sum)

- At a 25% annual compounded rate of return, $300 a month would grow into a whopping $13.14 million (121.6 times the principal sum)

Have the patience to wait, for the power of compounding will work and reward you with millions.

About The Author :

Adam Khoo is an entrepreneur, best-selling author and a self-made millionaire by the age of 26. Discover his million dollar secrets and claim your FREE bonus report 'Get Out Of The Rat Race Now' at Secrets Of Self-Made Millionaires.

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