Saturday, 19 October 2013

The Power of Compounding

Compounding is a simple investment strategy in which you put your money in an investment that pays a return.  At the end of the year, you take your return, or dividend, or interest and reinvest it with your original stake.  Your dividend, or interest, earns a return, too, building you a bigger dividend -- or higher interest payments -- for the next year.

A snowball is the best analogy for compounding.  As you roll the ball through the snow, the surface area gets bigger.   The more surface area on the snowball, the more snow it picks up.  The snowball gains mass slowly at first... but pretty soon, it's so large you can't move it.

Compounding is slow and boring at first.  But gradually, the dividends grow, and your reinvestments increase.  One day, you will wake up to find your account producing thousands of dollars per year in dividends and your wealth a giant snowball.

I find this is very true.  My stock portfolio (snowball), although still small and gaining mass slowly, have already passed two milestones this year:

May - Dividends collected exceeded $1,000 in a month.
Aug - Dividends collected exceeded $1,500 in a month.


  1. Congratulation on your dividend! Seem like your portfolio is quite substantial given the yield. Check out my investment articles in SG Wealth Builder ( Look forward to exchange of views on investment!

  2. Gerald,

    Thanks for your comments. My dividends given were in those 2 particular months and not the average per month. You have a comprehensive website. Thanks for sharing.