Top 7 Ways to Compound Your Money
The basic idea about compounding money is critical. Compounding means growing something at a certain growth, but the growth rate will get established at the new base. The concept of doubling your money is rigid and can have different scenarios in different fields.
Hard work does pay, but with education, we learn smart techniques and ideas that help us gain confidence, and by making use of it in compounding our money, we can achieve success, unlike hard workers like a maid, rickshaw person, etc. Smart work means achieving more in less time.
The foremost technique for doubling money is by investing in different platforms. While investing in any platform, there are certain basic ideas to follow that can make one achieve success and yield high profit. While investing, the first and foremost principle one should follow is “Rate of return and Period”, which will determine your profit and success in doubling your money. Compounding money follows the basic principle of compound interest. As Albert Einstein once said, “Compound Interest is the 8th wonder of the world. He who understands it earns it. He, who doesn’t, pays it.”
Rule Of 72
This is a basic rule invented by Albert Einstein. This rule gives the accurate time on which the invested money will get doubled with respect to the interest rate offered.
Despite having many spreadsheet programmers to calculate the time of doubling an income like MS-Excel or calculator, the rule of 72 is a quick assessment to follow and is very handy. The rule of 72 is very easy, where the time taken to double your income is calculated by dividing 72 with the interest rate offered for the period.
The application of the rule of 72 towards compounding money is essential. The rule of 72 is also necessary for the calculation of population, economics etc.
The critical factor of investing is the thinking process of an individual towards his investment. Professional investors always recommend investing in the short term for banks and long term to stock markets.
The process of compounding money generously depends on assets. Owning Assets leads to one time of hard work. In assets, we get Real Estate assets, which are a very good option for compounding money. Forbes magazine does tell us that many rich peoples invested in assets to compound their money. There are quite a few investing ways in assets:
- Flip Method: This method is about buying a property at lower prices and selling it at a higher price. The main motive is to acquire abandoned properties with poor infrastructure, later renovating them to a new place and then selling it. But this method allows less compounding of money.
- Hold method: This is an excellent method for compounding money. Holding is always good in terms of investment in any field.
Assets help in reducing taxes. The government does reduce taxes on holding assets, and the cash flow keeps running from other people’s money in assets. The compounding of money is very good if invested and is held in assets. This method increases the total net worth.
Investing in Stocks
Stock markets have been an active part of compounding money all these years. The markets do allow people to invest and, in return, gets to buy a proportion of a company. The main hurdle in compounding money through investing in stocks is short-listing of companies. The main idea towards investing in a stock market is holding funds and waiting till the money gets compounded.
The other ways of compounding money are CDs, also known as Certificate of Deposit, Bonds, and Real Estate Investment trust and treasury securities.
All these investments do help in the compounding of money. The Certificate of Deposit is a type of investment where you keep your money in banks. Banks give you assurance of increasing your money by providing you with particular interests. The money then cannot be withdrawn by you till a limited period as agreed to by the banks. This does help in the compounding of money, but the interest rate has to be above 10% to term it as a good investment or the time taken will be very long to compound the money.
The Bonds also allows one to earn money while investing. Bonds are generally offered by banks to customers or companies and, in return, gives an enormous amount of profit to everyone in long years.
Real Estate Investment trusts are the trust that offers investments to the companies that handles assets or leverages one. The investments are done through mutual funds or individually through an exchange-traded fund.
The treasury securities are the safest and best short time investment options present, which determines the safety of the principal amount like no other. These are also known as the last line of defence towards loss of any possible principal amount.
To summarize, the basic needs of compounding money can be filled up by healthy investments while taking help from sources that deals in investments and stocks. A good short-listing of companies is necessary, but all the professional investors suggest investing in something that is really close to a person. For instance, if anyone is accustomed to photography, they can always search for investments in on-camera products or of the same field, which would help in better understanding of the market as well the future of the products and the company.
Also, while investing in any field, a good interest rate should be acquired to gain money and compound the principal amount. A good interest rate is considered to be above 10%, which would yield a good amount in between 10-15 years.
Edited by Prakriti Arora