The Crazy Magic Of Compounding
Shubham Chakraborty
Writer for Hire | ex-Wyzr, MMT, ToI, GAIL | XLRI, NIT Bhopal | ????????????????????????????????????????????????????????????????????????????
More than 90% of Warren Buffett’s net worth was generated after his 65th birthday. You heard that right, 90%!!!
He started investing at the age of 10 when he was selling magazines going door to door. He just never stopped investing, and we all see the results now. His net worth crossed USD 1 million by age 30 in 1960. In 2023, it’s at a staggering USD 118 billion. These are such mind-boggling numbers that our brains have difficulty understanding this growth.
Think about it for a second: he has been investing continuously for 83 years now!
Investing has always been his skill, and he later polished even more by studying under the legendary Benjamin Graham at Columbia University. The secret ingredient for his immense wealth was compounding wealth over time. That is the magic of compounding and having financial discipline over a long time.
These levels of compounding are counter-intuitive, and that’s precisely why they are so underrated. We often ignore its power over long timelines and look for more immediate ways to increase our investments.
Trying to earn the highest investment returns is intuitive for most people. It seems like the best way to get rich. But in the long run, it’s not. Because we rarely stop to think about the potential of compounding. Great investments are not always about earning the highest returns because these might be risky strategies or can be due to strokes of luck that aren’t repeatable.
Suppose you start investing at age 25; by the time you turn 60, these initial investments will compound into high returns. In this 35-year timespan, you can make the magic of Compounding work for you to generate outsized returns.
The investing game is about earning decent returns with a sustainable strategy that you can follow over long periods of time. throughout your career and even after retirement. Compounding doesn’t work without TIME. You need to follow a consistent, sustainable strategy for a long time for compounding to work wonders. Increasing your time horizon is the single most powerful aspect of successful wealth creation.