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COMPOUNDING
The most powerful strategy that you can apply to any investment & arguably applicable across any aspect in life – unknown DA
The shores of Bali have afforded me the opportunity to learn how to surf. A total novice, never having stood on a board before, with the guidance of a good coach, step-by-step, building trial-by-errors, I persevered, to eventually stand, balanced on a surf board, without falling on my head!
The accretive nature of practice, over a period of time, from the initial guidance on technique on the sand, laying on the board, to standing, then balancing on the board in the sea, riding a wave [albeit a small] grew from building on one small-step-to-the-next. The “principal amount” of knowledge taught to me, grew each time I got back on the board. Each “try” was adding to the step prior. This is also known as “compounding”.
“Compounding” can be used in investing too. It’s akin to the “interest” or “profit” you gain from putting your money in the bank, saving the interest you make on the initial amount & adding to it, instead of spending, you end up with more money. The more you compound i.e. the more you add, the greater the amount your profits are.
This technique of “compounding” is the most powerful strategy that you can apply to any investment & arguably applicable across any aspect in life; like if you’re learning to surf from scratch: the more you practice the better you become! Similarly, successful investing in assets or building a business requires “compounding”. “Regularly investing” is like regularly practicing a new activity. Investing or saving small amounts of money, but critically, letting any increases build upon themselves, not withdrawing that money & leaving it long-term to grow can have results that really pay off.
However, nothing just happens overnight. “Compounding” in any aspect of life requires you to be “consistent” & “persistent” in the regularity of building or adding to your reinvestments, it requires “discipline/sticking to it”. As you do this, the compounding effect “does all the work for you” so long as you don’t take your money out or stop practicing!