There's only one investment technique that's mathematically certain to build fortunes from small starting positions. It is a sure technique thant anyone can do – called compounding.
You invest your money in something that pays you a return in the form of dividends, interest, or profits. Then you reinvest your dividend or interest income back into the investment. Now your dividends are earning dividends and your interest is earning interest. You are "compounding" your gains by reinvesting your profits. A snowball is the best analogy for compounding. When you first roll the ball in the snow, it gains mass slowly. But as the surface area increases, it picks up more snow. Suddenly the ball is so heavy you can't move it anymore.
Time is the most important ingredient in compounding. The more years you give it, the more your money mushrooms. Here's how it works… Let's say at age 40, you invest RM5,000 at 8% and reinvest the income. At age 65 you'll have RM34,000. If you'd made the same investment at age 20, you'd have RM160,000 by the time you turn 65.
You invest your money in something that pays you a return in the form of dividends, interest, or profits. Then you reinvest your dividend or interest income back into the investment. Now your dividends are earning dividends and your interest is earning interest. You are "compounding" your gains by reinvesting your profits. A snowball is the best analogy for compounding. When you first roll the ball in the snow, it gains mass slowly. But as the surface area increases, it picks up more snow. Suddenly the ball is so heavy you can't move it anymore.
Time is the most important ingredient in compounding. The more years you give it, the more your money mushrooms. Here's how it works… Let's say at age 40, you invest RM5,000 at 8% and reinvest the income. At age 65 you'll have RM34,000. If you'd made the same investment at age 20, you'd have RM160,000 by the time you turn 65.
To make the most of compounding, you should make regular payments. If you'd invested RM5,000 every year at 8%, starting at age 20 and reinvested the income, you'd have almost RM2 million by age 65.
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