Earning money and saving it is to some extent a matter of destiny and hard work. However, investing it in the right assets and with right people is all together a different story. As much as one may earn, as much as one may save, investing their money in the most profitable way is crucial. Saving money for retirement is the norm today. However, there are also sudden emergencies that one needs to cater to financially. Whatever it is, one needs to understand some integral facts to make most of the earned capitol!
When we earn money save it in a savings account, we won’t earn as much interest on it to make it a bigger saving. Only a little extra interest money won’t add up to be that great amount. As a smart investor, one must try to invest the savings into something else and try to get more money out of it. This is the basics of compounding returns. Your major aim is to earn interest on the savings & interest of your already existing money. This will help you to grow faster.
Here is as an example for understanding how can investors receive compounding returns. Suppose you invest INR 500 in a saving account, which gives you an interest of 10% yearly. If you leave your money in the bank account for one year and do nothing, you earn an extra INR 50, which will now make your initial investment increase from Rs. 500 to Rs. 550. This money can be left in the account for years if one is not looking for using it right away. However, if you are looking at compounding your returns, then some plans like the 401k should be the right place to start. As time passes, these accounts will grow and add on the compound returns to your existing saving.
In order to earn compounding returns, one has to invest in schemes that offer compounding returns. When your stocks pay a small dividend, you invest it into buying more stocks to maximize your profit instead of just taking it as it is. This is the answer for how can investors receive compounding returns on their investments. Meaning, every time your profit pays off in a certain way, you just reinvest it somewhere else to maximize your profits. This sets up a larger base, which means that you can be part of larger investments to earn more returns.
In addition, you can also use you dividends to your advantage by investing it in tax-friendly investment schemes like the 401k. Basically to get the investment compound returns like the investors do, one has to know, which scheme to invest and choose the right one. After a choice is made, one has to understand the details of the investment performance of the scheme.
Now that you know all the details of compounding your investment returns, you can now be rest assured and start your safe financial planning!