Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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The Amazing Effect of Compounding

Posted by Muthu on December 10, 2014

Start with a $1 investment that doubles in value year.

1) Sell the investment at the end of the year, pay the tax and reinvest the proceeds.

Do the same thing every year for twenty years.

End up with $25,200 clear profit.

(OR)

2) Don’t sell anything.

At the end of twenty years, end up with $692,000 after-tax profit.

I got the above data from the below tweet:

https://twitter.com/awealthofcs/status/542520113933864960

How much difference buying right and sitting tight pays instead of frequently churning the portfolio?

Buy right. Sit tight for long time. Power of patience would bestow the amazing effect of compounding.

One Response to “The Amazing Effect of Compounding”

  1. If we add in the non-zero transaction cost in buying selling, the first figure would come down even more… Great message.

    “It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”

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