The compounding effect is arguably a good friend and blessing for every investor. Every investor, especially those who are specifically investing for the long term, surely know very well how the compounding effect will provide truly significant benefits to financial conditions and objectives. So what exactly is the compounding effect? So investors love their existence and often help realize financial goals in the long run. Simply put, the compounding effect is the ability of an asset that is capable of making a profit and then reinvested to be able to produce profits again. In other words, the compounding effect can be said to be an effect that generates income from previous income.
The compounding effect is also often interpreted as ‘interest on interest’, where the interest earned on the previous investment is reinvested in the same or different instruments. So the interest that was invested was returned to produce interest. Or, your income generates more income. And so on until the maximum investment return. If specified, interest from compounding results can be obtained when the money you make from investing starts to produce profits again when reinvested. The compounding effect is arguably one of the easiest ways to meet financial goals. The earlier you invest, the more opportunities for your investment to enjoy this compounding effect.
There are still many people who do not know that the compounding effect is very beneficial. To start funding, people tend to say that they cannot raise money to invest. When in fact, money is not a problem because in this case, time is the most important thing. The compounding effect is often a mainstay of investors because its influence is very significant on plans and financial goals over time. Because the most important thing is time, everyone can feel this compounding effect when they are ready to start investing earlier. The earlier a person starts to fund, the stronger the effect of compounding effects on his investment returns.