# The power of compounding

"Compound interest is the eighth wonder of the world."

What is compound interest? Compound interest is interest earned from original principal plus accumulated interest. In other words, you earn interest on interest.

For example,

- Investor X invests RM3,000 annually from age 25 to 45.
- Investor Y waits until he's 40 to start investing RM6,000 annually until age 60.

Over 20 years,

- Investor X invested RM60,000.
- Investor Y invested RM120,000.

Assuming a 8% annual return on investment, at age 60:

- Investor X would have RM470,334.
- Investor Y would have RM296,538.

Assuming a 6% annual return on investment, at age 60:

- Investor X would have RM280,345.
- Investor Y would have RM233,956.

Time is your best friend. The power of compounding works in favor of long term investment. Start investing now even if it is a small amount.

© Lee Siew Ching.RSS