On... Only Time Matters?
Compounding is the 8th wonder of the world. And it works wonders if compounding is done over the long term. However, sometimes the importance of time in compounding can be taken over the top as if it is the only important aspect of increasing one's wealth. Time is important but we have to look at other factors as well in our Financial Planning. Figure 1 shows the scenario of compounding my Networth by 4 percent per annum over twenty years. With a starting value of 600 AUD, and additional injection of 600 AUD annually. That takes us to a total of 20,000 AUD. You can see the 'hockey stick' part of the chart forming as we're entering our 20th year. From there on, it probably goes parabolic. That shows that compounding works best if we have a long time frame. However, what if we missed the first 10 years? Is that the end of our compounding dreams? Actually, not at all. We often state that time is the greatest part of compounding. Well, yes, you need to compound for a long t...