The Power of Compounding (How to turn 4K / month to 1 Crore in 30 Years)

Recently, I came across an ad on a website claiming that if you invest 4K a month, you will be able to retire with 1 Crore. (For non-Indians 1 Crore = 10 Million).

I was puzzled by this. How mere 4K a month can be turned into 10 million in 30 years? Is it possible?

If you sum up the savings, 4000 a month for next 30 years, the total would be:
4000 * 12* 30  = 14,40,000. (That is nearly 14.5 lakhs only)

Then I researched a bit and found that it is possible with compounding.

So what is compounding?

According to Investopedia:

Compounding means the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings.

In short, this means, every earning from an asset is reinvested back to it so that the final earning will be bigger.

Now let us check our example:

How to turn 4K / month to 1 Crore in 30 Years

Imagine your will invest 48000 a year (or 4000 / month) to this retirement fund. In addition, imagine you are investing the money to a system (Stocks / Mutual Funds / Bonds / FDs) that gives you at least 11% annual return. Then here is table how your money will grow:

Please note that for ease of explanation I used an annual return model. The returns would be better if we calculated the values on a month-by-month basis.

It is very clear that if you start investing at an early age you will end up with huge amount at the time of retirement. Now go and use the power of compounding to your advantage!

PS:  Imagine the snowball effect if you are able to invest more than just 4K to this.

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