Time is the most critical factor in the compounding process from "summary" of The Joys of Compounding by Gautam Baid
Compounding is an extraordinary phenomenon that transforms initial investments into significant wealth over time. Its magic lies not just in the rate of return but primarily in the duration of the investment. The longer one allows an asset to grow, the more pronounced the effects of compounding become. This growth is not linear; it accelerates as the returns themselves begin to earn returns. Each year that passes adds another layer of growth, creating a snowball effect.
Consider the difference between two investors. One starts early, allowing their investments to mature for several decades. The other delays their entry into the market, missing out on critical years. Even with the same rate of return, the first investor will end up with a substantially larger portfolio, illustrating the staggering impact of time. This principle underscores the i...
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