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"Compounding" The 8th wonder of the World.

How do you beat other financial instrument in terms of return...?

Me : When you focus on compounding return instead of simple intrest.

Compounding is the key factor to multifold your principal and create wealth that no any other method beat because of its inherent property.

For me its 8th wonder of the world...

Q : How compounding work ?

To understand this, first look towards it's formula,

A = P ( 1 + r / n )^ nt

Where

P = Principal amount ( initial investment )

r = Annual nominal interest rate ( as a decimal )

n = number of times the intrest rate compounding per year

t = number of years.

To, increase speed of compounding, you have to increase any of above 4 parameters.

1. Rate of interest ( r ) : Mass of people focus on annual interest rate...If any instrument or product that give higher annual intrest that compounding money more. But this is not true 100%.

If you want to find out instrument that generate higher return, you have to take higher Risk. So, how do you solve this issue...?

Me : If you want to generate 24 % return annually...Then you have to generate 6% return quarterly, 2 % return on monthly basis, or 0.5 % return on weekly basis.

So, Now rather than focus on interest , focus on frequency of compounding. If you generate lower return and compounding it frequently that creates effective compounding.

So, for me ' n ' is more important than ' r '. Now, issue is...When it looks So, simple practically it's not. Because if you focus on lower return with increase frequency of compounding, only hurdle that affect it's performance is, You have to generate this return on " Consistent Basis".

So, to generate higher compounding return, you have to raise value of ' n ' & ' t '. Now, if you generate return frequently and consistently, you follow and accept this process for longer duration of time, that increase ' t ' value, automatically. So, Now only focus on " CONSISTENCY ".

For, getting Consistent return, you have to adapt system that generate return on every market conditions.

And lastly, ' P ' - if you increase principal amount, it's automatically increase compounding return.

So, when everyone focus on higher return, i focus on system that generate lower return with higher frequency on consistent basis.

To, generate consistent base return, you have to follow High Probability System.

One of this system, that I apply since last 5 year is Index Option Selling Money Management.

That generate return on weekly, monthly & quarterly basis on Consistent Basis. Compounding generate wealth exponentially on longer run.

Happy investing ! 😊