Imagine you’re the recipient of an amazing windfall. The catch is, you get to decide how your “winnings” are paid out.
For the purpose of this experiment, you can choose from $2,000 cash money or a “magical penny” that doubles in value for 31 days straight. Either option will leave you with more money than you started with, but one choice leaves you a lot better off.
So, which option would YOU choose?
This is the exact question I posed when I spoke to around 100 students at my Alma Mater earlier this year. And, the group reacted almost exactly as you’d expect.
Out of around 100 students, at least 90 said they would choose $2,000 in cash with no questions asked.
Since that’s a lot of money for a broke college kid, I totally get it. When you’re a struggling student, a guaranteed $2,000 is a nobrainer.
But, is it really the better deal? Or, is there more to the story?
Introducing the Magical Penny Concept
By now, you can probably guess that the magical penny has a few tricks up its sleeve. And, it absolutely does. While $2,000 in the bank is a nice surprise, a quick run of the numbers should tell you which choice will leave you better off.
The crazy thing is, it’s not even close!
Believe it or not, choosing a magical penny that doubles in value every day for 31 days would help you grow over $10 million dollars in riches!
Don’t believe me?
I don’t blame you. When I first told my wife Mandy about the magical penny concept, she rolled her eyes and said I was crazy. It was only after I ran through the numbers with her that she realized my magic penny wasn’t dumb or cheap, but an absolute miracle.
You see, $2,000 is $2,000, but that money isn’t growing. But, a penny that doubles in value every day? That penny will eventually explode due to the magic of compound interest. Day after day and week after week, the growth the penny achieves doubles again and again.
Over time, the doubling and compounding takes on a life of its own……leading to inconceivable amounts of wealth.
You can hear more about the experiment and the magic of compounding in this Facebook video:
How to Apply the Magical Penny Concept In Real Life
While magical pennies don’t actually exist, the concept that drives them is actually very common. This story illustrates nothing more than the power of compounding anyone can gain by investing their money continuously over their lifetime.
Unfortunately, not everyone is taught the value of investing early on. When I asked the students at my Alma Mater how much they were taught about investing while they were growing up, most people went blank. They were told they should save and invest, but few people were shown how to invest or, even more importantly, where to invest.
Most parents from the baby boomer generation and beyond learned to impart basic financial advice on their kids without including many specific details. While some solid money advice is better than nothing, the lack of specifics leaves young people without any knowhow when it comes to investing or growing their money.
Obviously, I want to change that – not only for my own kids, but for anyone who wants to build the life of their dreams.
So, how can you apply the magical penny concept to your own financial life?
The answer is rather simple.
 Step 1: Save a large percentage of your income and avoid debt like the plague.
 Step 2: Take advantage of worksponsored 401(k) options and make sure you’re getting your full employer match.
 Step 3: Then, save up the money to open a Roth IRA or traditional IRA to invest even more.
 Step 4: If you have even more excess cash to invest, open a brokerage account.
Over time, the returns you get will compound on themselves over and over and over, leading to greater wealth and security than most people could imagine.
While compound interest isn’t rocket science, it is magic. By investing regularly, you can grab some of that magic for yourself.
The Bottom Line
Chances are, you’ll never receive a magical penny in your lifetime. However, you can absolutely get rich if you take the magical penny concept and use it to your advantage.
But, it all starts with you and how you handle your money from this day forward. Will you invest for the future, or take the quick money and run?
Would you rather have $10 million, or the amount you’d get from doubling a penny every day for a month (so on the first day you’d have one cent, on the second two cents, the third four cents, etc.)?
If the answer isn’t obvious to you, you’re not alone. It’s a question that rests on how well you understand compound interest, the miraculous tool of finance that can lead even math whizzes astray. Small differences quickly become big ones when compounded, so estimating and rounding—tricks that normally help us with simple calculations—can throw numbers wildly off.
“Almost everyone is bad at this,”says Dan Siciliano, a Stanford law professor and a former startup CEO who gives seminars in corporate finance. ”Our normal method of eyeballing in compounding really doesn’t work.”
The power of compounding is why people are urged to start investing at a young age—investing $100 a month at age 25 will yield you twice as much at age 65 than if you started at age 35—and the mental gymnastics required to understand it helps explain why so few do.
Even financial professionals get it wrong. When Groupon, an Internet darling five years ago, prepared to go public in 2011, it warned in its IPO prospectus that the company’s 154% quarterly growth rate for revenue “may not” be sustainable. That didn’t stop investors from assuming that rate would continue for years, although the math showed that its 2011 secondquarter sales of $644 million growing at that rate would multiply into $120 trillion, more than the global GDP, by the middle of 2014. Even a conservative estimate of a quarterly growth rate of 30% would put annual revenue at $20 billion, more than Facebook or Starbucks recorded last year.
Compounding can be an issue in public policy, as well, when officials project budgets or growth rates decades into the future. Politicians may shrug off a 1% difference in costs, but its impact could be substantial in 30 years.
“The place where you’re most likely to see compounding not played out correctly is assumptions around entitlements and the overall growth of something,” Siciliano said. “A policy maker may say ‘we hope to grow the college population by x percent.’ It sounds modest if you say 3% but if you map that over a generation, you’re going to be making a big promise.”
By now, you’ve probably guessed the answer about whether to take the $10 million lump sum or the penny that compounds over a month. But it’s actually a trick question, because the length of the month matters tremendously. A 30day month will yield you $5.37 million, while a 31day month generates $10.7 million. Small differences can have a big impact in compounding.
And if you held on to the doubling penny for two months? You’d have a cool $23 quintillion, or $23,058,430,092,136,900.
Here's a primer on this important financial concept investors need to understand.
When it comes to calculating interest, there are two basic choices: simple and compound. Simple interest simply means a set percentage of the principal amount every year. For example, if you invest $1,000 at 5% simple interest for 10 years, you can expect to receive $50 in interest every year for the next decade. No more, no less. In the investment world, bonds are an example of an investment type that typically pays simple interest.
On the other hand, compound interest is what happens when you reinvest your earnings, which then earn interest as well. Compound interest essentially means “interest on the interest” and is the reason many investors are so successful.
Think of it this way. Let’s say you invest $1,000 at 5% interest. After the first year, you receive a $50 interest payment. But, instead of putting it in your pocket, you reinvest it at the same 5% rate. For the second year, your interest is calculated on a $1,050 investment, which comes to $52.50. If you reinvest that, your thirdyear interest will be calculated on a $1,102.50 balance. You get the idea. Compound interest means that your principal (and the interest it generates) gets larger over time.
The difference between simple and compound interest can be massive. Take a look at the difference on a $10,000 investment portfolio at 10% interest over time:
Time Period  Simple Interest @ 10%  Compound Interest (Annually @ 10%) 

Start  $10,000  $10,000 
1 Year  $11,000  $11,000 
2 Years  $12,000  $12,100 
5 Years  $15,000  $16,105 
10 Years  $20,000  $25,937 
20 Years  $30,000  $67,275 
30 Years  $40,000  $174,494 
Calculations by author.
It’s also worth mentioning that there’s a very similar concept known as cumulative interest. Cumulative interest refers to the sum of the interest payments made, but it typically refers to payments made on a loan. For example, the cumulative interest on a 30year mortgage would be how much money you paid toward interest over the 30year loan term.
How compound interest is calculated
Compound interest is calculated by applying an exponential growth factor to the interest rate or rate of return you’re using. To calculate compound interest over a certain period of time, here is a mathematical formula you can use:
Where “A” is the final amount, “P” is the principal, “r” is the interest rate expressed as a decimal, “n” is the compounding frequency, and “t” is the time period in years. Here’s what all of these variables mean:
 Principal refers to the starting balance on which interest is being calculated. The term is more commonly used in the context of a loan’s original balance but can be applied to your original investment amount as well. For example, if you decide to invest $10,000 for five years, that amount would be your principal for the purposes of calculating compound interest.
 Rate refers to the interest rate (or expected rate of return in investing), expressed as a decimal. For calculation purposes, if you expect your investments to grow at an average rate of 7% per year, you would use 0.07 here.
 Compounding frequency refers to how frequently you’re adding interest to the principal. Using the example of 7% interest, if we were to use annual compounding, you would simply add 7% to the principal once per year. On the other hand, semiannual compounding would involve applying half of that amount (3.5%) twice a year. Other common compounding frequencies include quarterly (four times per year), monthly, weekly, or daily. There’s also a mathematical concept called continuous compounding, where interest is constantly accumulating.
 Time is a pretty selfexplanatory concept, but for the purposes of calculating compound interest, be sure to express the total time period in years. In other words, if you’re investing for 30 months, be sure to use 2.5 years in the formula.
Compounding frequency makes a difference
In the previous example, we used annual compounding — meaning that interest is calculated once per year. In practice, compound interest is often calculated more frequently. Common compounding intervals are quarterly, monthly, and daily, but there are many other possible intervals that can be used.
The compounding frequency makes a difference — specifically, more frequent compounding leads to faster growth. For example, here is the growth of $10,000 at 8% interest compounded at several different frequencies:
Damani feels finding a great stock is rare and if an investor finds one, he should invest in it aggressively.
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Dalal Street veteran Ramesh Damani says investors should have a target to double their money every three years if they want to create phenomenal wealth from the stock market.
“If one can achieve this goal, an investment of Rs 10 lakh can become Rs 100 crore in a 30year career in stock market. The initial investment would surge 10 times, or 1,000 per cent,” he said in an address to a Wealth Creation Summit, whose video is now available on YouTube.
Damani said the concept of doubling money is simple; you need to grow at a CAGR of 24 per cent to double your money every three years.
This, Damani feels, can be achieved by using the “principle of compounding.”
Great businesses can effortlessly deliver such returns over a long time, says he. “Great businesses compound over time, compounding your wealth over time. The trick to get wealthy is to double your money every three years. That should be the benchmark. Great businesses can last various market cycles to build great franchises. They have great managements and pricing power. They outlive market cycles because human habits don’t change,” Damani said.
He advised investors to learn the principle of compounding, which can lead to financial liberation. “Compounding can be successful only if one starts investing at a very young age and do so for a long time, which will help grow your wealth into a large corpus. Even a small amount invested early can make a huge difference 2030 years down the road,” he said.
Have a ‘circle of competence’
Damani advised young investors to have a circle of competence and feels they should try to invest in a sector they understand well and have some knowledge about.
“There are 5,000 stocks that trade on any given day on BSE. Try and find a sector that is competitive. If you are a banker, look at banking stocks. If you're a medical practitioner, look at stocks in the pharmaceutical world,” he said.
According to Damani, there is no use investing in those sectors just because others are investing in them but about which one has no idea.
Giving his own example, he said when he came back from the US, he had a good understanding of the technology sector. So he invested heavily in technology companies and got rewarded handsomely.
Tricks to find multibaggers
Damani says in order to find multibaggers, it is essential to calculate the value of a company. This can be done by first deducing the market capitalisation of the company by multiplying the number of outstanding shares by the share price. The difference between this market capitalisation and the value addition of the business can give the value of the company.
"Infosys IPO had raised only Rs 50 crore. Now it has become Rs 3 lakh crore. Once you find the true value (of a business), it will be easy to bet on its future," he said.
Damani feels it is essential to gauge the growth prospects of a company and triggers that can lead to its growth.
Giving example of the typewriter business, he said no matter how much one invests in this business, its stocks will remain cheap as it doesn't have a trigger for growth.
On the other hand, media industry’s digitisation has triggered growth prospects and huge value in cybersecurity, as there is a huge trend of people trying to protect themselves.
Think 'Out of the Box'
Damani says in order to create great wealth, investors need to think differently and stand against the herd. Coming up with different ideas and thinking out of the box can lead to superior investments. Following the crowd is unlikely to help investors earn big bucks. So the idea should always be to keep the thinking cap on.
Conventional stocks become obsolete after a period and a new thought process can be advantageous in finding a new generation of stocks that may do well in the future.
“There always is change in trends that gives huge profit in the stock market. Earlier companies like Grasim, Bombay Dyeing gave good returns. Then came technology stocks like TCS, Infosys. But stocks that will give huge returns will be from different sectors. Key is to identify them early,” he said.
Aggressively invest in a 'great stock'
According to Damani in order to become successful, it is important to think big as an investor can’t become rich by making only Rs 5,000 or Rs 10,000 in the stock market.
Damani feels finding a great stock is rare and if an investor finds one, he should invest in it aggressively.
“The trick is when you find a great stock, when you find this great value is to back up your truck, buy a truckload of that stock because when that does well, that's when you would become seriously rich. So if you want to become Warren Buffett, you need to be able to back up the truck and bet high on your conviction,” he said.
Invest for longterm to earn big bucks
Damani said in order to earn big bucks, one should invest for the long term and not depend on shortterm trading. Damani says investors who enjoy trading should have two different accounts; one for trading and one for investment. The investment account should be used for wealth creation while trading account should be used for enjoyment and thrill.
(Disclaimer: This article is based on a Youtube video of a talk given by Ramesh Damani at the Wealth Creation Summit organised by Badjate Stock and Shares Private Limited in Nagpur.)
You’re probably already familiar with the basic concept of earning interest: You put $1,000 in the bank, and the bank pays you a little bit of interest in return, such as 2% per year. At the end of the year, you’ve earned $20.
Compound interest refers to earning interest on the interest you’ve already earned. If you keep holding your money in the bank, you’ll continue to earn interest not only on your original $1,000 but also on the $20 you earned. That means the amount of interest you earn will increase each year. In the second year, for example, you’ll earn $20 and 40 cents.
The magic of compounding is that your money grows at an increasing pace. That extra 40 cents may not sound like much. But over time and with bigenough numbers, compounding delivers mighty results.
Would you rather receive $10,000 a day, every day for a month or one penny that doubles each day for a month? (Hint: Yes, it’s a trick question!)
Thanks to the amazing math of compounding, at the end of one month, the doubling penny will have earned you $10,737,418 (and a massive need for some coin rollers) compared with $310,000 if you had collected $10,000 per day. Put another way, the doubling penny earns you 35 times what the $10,000aday option does.
Now do you believe in magic?
“My wealth has come from a combination of living in America, some lucky genes, and compound interest.“
—Warren Buffett
Let’s get real here. The reason the penny example delivers such big results is that it uses an absolutely massive interest rate. Doubling your money every day (meaning a 100% daily interest rate) is the same as an annual interest rate of about:
Any starting amount of money can grow into a giant pile of money with a big enough interest rate. Realworld numbers are typically a lot smaller.
Compounding always speeds along your money’s growth (unless you don’t let the interest you earn continue to grow). But three main things can help turbocharge your compounding:
 A higher interest rate
 A bigger starting sum of money or adding more money along the way
 More time to grow
Suppose you let your money grow for 10 years in the following situations:
Starting sum of:  2% rate  10% rate 
$1,000  $1,219  $2,594 
$100,000  $121,899  $259,374 
Obviously, starting with more money is a big help. But the extra eight percentage points of interest makes an enormous difference too—at a 10% interest rate, you end the decade with twice as much money in each case as you would with a 2% rate. The extra interest helps your money compound faster.
Now suppose that instead of just 10 years you let your money grow for 30 years. And suppose that in each case you’re also able to save and invest an additional $5,000 every year:
Starting sum of:  2%  10% 
$1,000  $204,652  $839,919 
$100,000  $383,977  $2,567,410 
With enough time, a solid interest rate, and the ability to add money to your stash, even the realworld numbers can get pretty big. Now that’s some magic you can actually use.
Savings accounts will compound your money. But because they pay low interest rates they do so very slowly. Billionaires like Warren Buffett put their money in investments that pay more over the long run, such as:
 Stocks
 Bonds
 Real estate
That’s because, as we saw above, even just a slightly higher rate can boost your money’s compounded growth by leaps and bounds.
Compound interest refers to earning interest on the interest you’ve already earned. Compounding has been called the eighth wonder of the world because of the amazing way it can grow small sums into vast riches. In the real world, you can boost the compounded growth of your money by saving more, letting your money grow for longer, and seeking higher rates by shopping around with different investments.
Albert Einstein supposedly said that. Lots of quotes get attributed to him that he didn’t actually say, and this may be one of them; I personally don’t see the guy who imagined riding a light beam to figure out the Theory of Relativity waxing poetic about compound interest.
But even if Einstein really didn’t say compound interest was the Eighth Wonder of the World, it’s still a good point. Compound interest is pretty dang awesome. It’s a powerful concept — one that can mightily strengthen, or weaken, your finances. The man who understands it will have a tool to increase his net worth; the man who doesn’t will go through life stuck in a paycheck mentality.
My sevenyearold son recently opened up a savings account, and it offered me the chance to explain compound interest to him. It didn’t go well. It’s one of those financial concepts that’s so simple that you take it for granted. Consequently, when you’re forced to explain it to a child, you realize you don’t have as much of a grasp on it as you thought you did. Einstein also supposedly said, “If you can’t explain it to a sixyearold, you don’t understand it yourself.” Again, even if he didn’t say that, it’s a good point.
If your dad never sat you down to talk compound interest, you’re in luck; having honed my explanation on Gus, I’ll now pass it along to you.
What Is Compound Interest?
To understand compound interest, it’s useful to understand simple interest first.
Simple interest is calculated on the principal or the original amount of a deposit or loan. It’s really, well, simple to figure out.
Let’s say you take out a loan for $10,000 at a simple interest rate of 5%. The duration of the loan is four years.
To calculate the interest that’ll accumulate on the loan, you’d use the following formula:
Principal x interest rate x term of the loan
Plugging in our numbers, it would be:
$10,000 x .05 x 4 = $2,000
So that $10,000 loan will cost you $2,000 in simple interest.
Car loans, home mortgages, and student loans use simple interest. A loan you take from a family member or friend will likely use simple interest (if they charge you interest at all).
Now that you understand simple interest, we can move to compound interest.
Compound interest is calculated on the principal amount and — this is key — also on the accumulated interest of previous periods. It’s interest on interest.
Here’s what the compound interest formula looks like:
[P = Principal; r = annual interest rate in percentage terms; n = number of compounding periods for a year; t = number of years money is invested or borrowed]
Yeah, it looks confusing, but let’s plug in our numbers from the simple interest example to see what we’d pay if the interest was compounded.
So we got a $10,000 loan that compounds annually at 5%. The duration of the loan is 4 years. What would we pay in interest? Let’s look at the progression of the math:
$10,000 (1+.05/1) (1×4) – $10,000 →
$10,000 (1+.05/1) (4) – $10,000 →
$10,000 (1.21550625) – $10,000 →
$12,155.0625 – $10,000 = $2,155.06
So on a fouryear loan that’s compounded annually, we’d pay $2,155.06 in compound interest. That’s $155.06 more than a loan issued on simple interest. Calculating interest on the interest already accrued on a principal can really add up. And add up fast as we’ll see in an example below.
If you’d rather not do the math yourself, there are plenty of compound interest calculators online.
Credit cards calculate balances on compound interest. Instead of compounding annually, credit card companies compound monthly. The high interest rates of credit cards coupled with their monthly compounding is why pretty much every single personal finance guru out there says “Don’t carry a balance on your credit cards!” You end up paying a lot for that extended credit. For example, a credit card balance of $10,000 carried at an interest rate of 20% (compounded monthly) would result in total compound interest of $2,193.91 over one year, or about $183 per month. Imagine what you could do with an extra $183 a month.
Compound interest can work in your favor, though. Big time. When you sock your money into a savings account, banks typically pay compound interest daily on the money you keep with them. Granted, the interest rate you get is pretty crappy — somewhere between .03% and 1% depending on the bank — but when you compound at that rate daily and you keep that money in there for a long time, things can add up.
If you invest in an index fund, you can leverage the power of compound interest by reinvesting your earnings into buying more of the index fund which will allow you to earn even more, which you then reinvest, and so on and so forth.
Compounding Periods Have a Big Effect on Earnings
Looking at the compound interest formula, you’ll likely notice that the frequency of compounding periods can have a big effect on your earnings or how much you have to pay in interest. The more compounding periods, the more interest that is accrued. You’ll earn more in interest from a bank that compounds daily compared to a bank that only compounds monthly; you’ll pay more in interest on a loan that compounds monthly compared to one that compounds annually.
So when looking at interest rates for a savings account or loan, make sure to pay attention to how often interest is compounded.
Time Is Your Friend
The real magic of compounding reveals itself over long periods of time. The longer you let your money sit in an account and compound itself, the more money you make.
This is the big point I’ve been trying to make to my son. What’s helped flip on the light bulb in his head is this example from personal finance expert Beth Kobliner:
If you were to save $1,000 a year from age 25 to 34 in a retirement account earning 8% a year, and never invest a penny more, your $10,000 investment would grow to $157,435 by age 65. But if you don’t start saving until you’re 35 years old and then invest $1,000 a year for the next 30 years (that’s a total investment of $30,000), you’ll have only $122,346 by age 65. The bottom line: Start early, so your money has enough time to pile up.
Understanding this concept has helped turn Gus into a tightfisted Scrooge McDuck. “Man, imagine how much interest I can earn since I’m starting at seven years old!” At the beginning of each month, he loves to check his savings account to see how the interest he earns is going up little by little thanks to the magic of compound interest.
Use the Power of Compound Interest to Your Advantage
Understanding compound interest can really help you move ahead with your personal finances. Knowing that credit card companies compound the interest on your balance on a monthly basis should act as an incentive to pay off credit card debt as quickly as possible. Knowing that you can make money from your money should act as an incentive to sock away as much dough as you can and to not touch it for as long as you can.
The key is to get started today. If you’ve got credit card debt, start paying it off now so compound interest doesn’t devour you. If you don’t have a savings or retirement account, start one today so you can leverage the power of this Eighth Wonder of the World.
Now that we have a basic understanding of compound interest, we can start exploring things like APR and APY. We’ll do that in a future article.
Great businesses can effortlessly deliver such returns over a long time, says Damani.
Damani feels finding a great stock is rare and if an investor finds one, he should invest in it aggressively.
Related
Dalal Street veteran Ramesh Damani says investors should have a target to double their money every three years if they want to create phenomenal wealth from the stock market.
“If one can achieve this goal, an investment of Rs 10 lakh can become Rs 100 crore in a 30year career in stock market. The initial investment would surge 10 times, or 1,000 per cent,” he said in an address to a Wealth Creation Summit, whose video is now available on YouTube.
Damani said the concept of doubling money is simple; you need to grow at a CAGR of 24 per cent to double your money every three years.
Great businesses can effortlessly deliver such returns over a long time, says he. “Great businesses compound over time, compounding your wealth over time. The trick to get wealthy is to double your money every three years. That should be the benchmark. Great businesses can last various market cycles to build great franchises. They have great managements and pricing power. They outlive market cycles because human habits don’t change,” Damani said.
He advised investors to learn the principle of compounding, which can lead to financial liberation. “Compounding can be successful only if one starts investing at a very young age and do so for a long time, which will help grow your wealth into a large corpus. Even a small amount invested early can make a huge difference 2030 years down the road,” he said.
Have a ‘circle of competence’
Damani advised young investors to have a circle of competence and feels they should try to invest in a sector they understand well and have some knowledge about.
“There are 5,000 stocks that trade on any given day on BSE. Try and find a sector that is competitive. If you are a banker, look at banking stocks. If you’re a medical practitioner, look at stocks in the pharmaceutical world,” he said.
According to Damani, there is no use investing in those sectors just because others are investing in them but about which one has no idea.
Giving his own example, he said when he came back from the US, he had a good understanding of the technology sector. So he invested heavily in technology companies and got rewarded handsomely.
Tricks to find multibaggers
Damani says in order to find multibaggers, it is essential to calculate the value of a company. This can be done by first deducing the market capitalisation of the company by multiplying the number of outstanding shares by the share price. The difference between this market capitalisation and the value addition of the business can give the value of the company.
IPO had raised only Rs 50 crore. Now it has become Rs 3 lakh crore. Once you find the true value (of a business), it will be easy to bet on its future,” he said.
Damani feels it is essential to gauge the growth prospects of a company and triggers that can lead to its growth.
Giving example of the typewriter business, he said no matter how much one invests in this business, its stocks will remain cheap as it doesn’t have a trigger for growth.
On the other hand, media industry’s digitisation has triggered growth prospects and huge value in cybersecurity, as there is a huge trend of people trying to protect themselves.
Think ‘Out of the Box’
Damani says in order to create great wealth, investors need to think differently and stand against the herd. Coming up with different ideas and thinking out of the box can lead to superior investments. Following the crowd is unlikely to help investors earn big bucks. So the idea should always be to keep the thinking cap on.
Conventional stocks become obsolete after a period and a new thought process can be advantageous in finding a new generation of stocks that may do well in the future.
“There always is change in trends that gives huge profit in the stock market. Earlier companies like Grasim,
gave good returns. Then came technology stocks like TCS, Infosys. But stocks that will give huge returns will be from different sectors. Key is to identify them early,” he said.
Aggressively invest in a ‘great stock’
According to Damani in order to become successful, it is important to think big as an investor can’t become rich by making only Rs 5,000 or Rs 10,000 in the stock market.
Damani feels finding a great stock is rare and if an investor finds one, he should invest in it aggressively.
“The trick is when you find a great stock, when you find this great value is to back up your truck, buy a truckload of that stock because when that does well, that’s when you would become seriously rich. So if you want to become Warren Buffett, you need to be able to back up the truck and bet high on your conviction,” he said.
Invest for longterm to earn big bucks
Damani said in order to earn big bucks, one should invest for the long term and not depend on shortterm trading. Damani says investors who enjoy trading should have two different accounts; one for trading and one for investment. The investment account should be used for wealth creation while trading account should be used for enjoyment and thrill.
(Disclaimer: This article is based on a Youtube video of a talk given by Ramesh Damani at the Wealth Creation Summit organised by Badjate Stock and Shares Private Limited in Nagpur.)
A math problem for the ages: would you rather have a million dollars right now or a penny that is doubled every day for a month? Several math teachers have tried to trick people with this problem. Although it probably got most of them the first time, once they looked at it more carefully, taking the doubling penny is the obvious answer. This is a classic example of compounding: building wealth from previous earnings. Like successful investing, the penny problem requires you to choose between immediate satisfaction and investing patiently, which can ultimately result in far more wealth.
When you first consider this penny problem, the math certainly doesn’t look promising. After 21 days, more than twothirds of a month, you will have just surpassed $10,000. That doesn’t sound like much in the shadow of a million bucks. But in that last third of the month your money increases by more than 500 times. On day thirty you would have over five million dollars. Your theoretical patience really pays off.
While it’s a fun problem to imagine, those math teachers can’t actually double that penny for us. Luckily, an understanding of sound investment strategies and simple investment tools like Evati can help you out. The trick is commitment and patience. In the penny problem, your pennies accumulate slowly at first until that final week where suddenly everything comes together and you realize you made the right choice. It works kind of like a rocket ship: in the first ten minutes of flight, the rocket uses almost all of its fuel just to get into orbit. For the next few hours it uses far less fuel for minor corrections and a smooth flight to the moon. Investing can be like that rocket ship—it takes a lot of energy and willpower to ignite the engine, but once you get started it’s smooth sailing. It can seem rather bleak at first with very little return and putting in a lot of work to invest money, but once you reach the moon all of that is forgotten.
You might want to start your investment with more than a penny, but it doesn’t have to be much. It can be as little as five dollars per day. That may seem like a lot, but there are plenty of savings hacks out there to make saving easier, such as reevaluating monthly subscriptions that might be draining your checking account each month.
Once you commit to five dollars per day, you will have to rely on patience. If you just saved five dollars everyday for one year you would have almost $2,000, which sounds pretty nice because in just five years you would have $9,125. But you want to make earnings off of your previous earnings—to compound your returns. One way to do that is to stash your five dollars a day in a savings account at a bank that earns interest. But, banks these days are only paying about 0.01% in interest, which isn’t much. If you put five dollars a day into one of those accounts, you’ll end up with about $9,128 after five years, an increase of only three dollars.
Fortunately, there’s a better way to compound the returns on your savings. If you put that five dollars into an investment account you’ll enable your money to work even harder for you. If you assume that investment account has an expected annual return of seven percent (which is healthy, but not outlandish), your five dollars per day would be worth $10,829 in five years. In ten years, your five dollar per day investment would be worth more than $26,000.
In fact, if you keep up your savings habit of five dollars a day, the expected value of your portfolio would increase to over $538,000 fortyfive years after you started, just in time for retirement. That’s where the patience comes in, because you have to let your investment work over time. And the earlier you start, the more time you will have to let compounding work its magic.
With commitment, patience, and a simple investing tool like Evati, you can create financial insurance for your future which means more freedom later on. Of course there are no guarantees in the markets and you may not achieve a seven percent rate of return every year, but over time there is a general upwards trend and through smart investment you can expect significant growth. Don’t just take that one penny up front; think about its future potential. It’s not sacrificing everything fun in your life, it’s being smart with the money you have now so that later you can spend it on onceinalifetime experiences or whatever you dream of for your retirement.
If you want to save more money, there are endless tips and tricks to help you out. But it often means making some sacrifices.
Luckily, there are several small tweaks you can make to your life to start building wealth without even getting off the couch. Below, CNBC Make It has rounded up seven easy ways to save and earn more.
Kick back, relax and start putting your money to work.
Automate your savings
As selfmade millionaire David Bach advocates, pay yourself first. That means setting up your savings like a bill that needs to be paid, so a certain amount is automatically transferred from your checking account to those accounts each month.
"You'll never forget a payment again — and you'll never be tempted to skimp on savings because you won't even see the money going directly from your paycheck to your savings accounts," Bach writes in "The Automatic Millionaire."
Increase your contributions
Once you've set up your finances to automatically put money away, take things one step further by incrementally increasing your savings every year. Even a 1 percent bump to your employer sponsored 401(k) plan, if you have one, can make a major difference over time, thanks to the power of compound interest.
You can check online to see if you can set up "autoincrease" for your 401(k), which allows you to choose the percentage you want to increase your contributions by and how often. This way, you'll never forget to up your contributions, or talk yourself out of setting aside a larger chunk.
Try Warren Buffett's favorite way to invest
Legendary investor Warren Buffett favors index funds over most other investing options, and for good reason. "It's the cheapest and easiest way to diversify your money that you're investing," Nick Holeman, a certified financial planner at Betterment tells Make It.
Not only are index funds lowcost, but they don't require much effort to manage. You just make the investment and let it do its thing instead of following, buying and selling shares in particular companies.
And because they don't require much trading, index funds are tax efficient as well. Managers are "not constantly buying and selling within that fund," Holeman says. "Anytime that you do a lot of buying and selling, there's the potential to cost yourself a lot in taxes."
That can translate to more money in your pocket. Because you aren't paying an advisor as much as you would for actively managed funds, you're probably saving money in fees that could cut into your returns, Holeman says.
Brew coffee at home
Ditch your daily latte. Choose a homebrewed cup of joe from the couch and put the money you saved to work instead.
Bach coined the term "The Latte Factor," which basically says that if you eliminate your $5 daily latte (or muffin, smoothie or any other unnecessary daily expense), you could save quite a bit of money over time, especially if you use that money to invest.
It worked for for selfmade millionaire Chris Reining, who crossed the $1 million threshold at age 35 and retired at 37. Reining says that forgoing his daily coffee helped him save over half of his income.
"I know there are some people out there that say you shouldn't worry about the $5 latte, but the more I think about it, cutting out the $5 latte was a good place to start. Because if you try to downsize your house, get rid of all yours cars and make all of these drastic changes, it's so overwhelming and you're not going to do any of it," he tells CNBC Make It.
Build streams of passive income
Generating passive income takes some effort up front, but once you get into a groove, it can become easy money. You could rent out your spare bedroom on Airbnb, or petsit, or place ads on your personal blog, or come up with a whole new idea.
Once you've set up a lowmaintenance revenue stream, divert your extra earnings into savings. Generating two incomes and living off one is a favorite money saving strategy of comedian Jay Leno.
Kick back with a good book
Walk into a millionaire's home and you're likely to find an abundance of books, if not an entire library, Keith Cameron Smith observes in "The Top 10 Distinctions Between Millionaires and the Middle Class." That's because millionaires know that learning doesn't stop when you finish school.
"Success is a process," Smith says. "If a percentage of your income isn't going toward a financial education, you will stay trapped in the middle class. The more money you spend on financial knowledge, the more money you will make."
The cheapest and easiest way to start investing in your financial education is through books. If you need some inspiration for where to start, check out the favorite books of billionaires such as Elon Musk and Warren Buffett.
Take the first step toward earning more
Ultimately, the best way to boost your income is to earn a higher salary, whether that means nabbing a promotion or pivoting into a new job. You can start educating yourself on how to reach that goal now by enrolling in a class to learn a new skill or reading up the qualifications needed to switch careers.
Tony Robbins and Warren Buffett agree: Investing in yourself — and your future — is the smartest investment you can make. For Robbins, that meant completing a personal development seminar with coach Jim Rohn.
Jim Rohn "made me stop focusing on what was outside of my control … and taught me to focus instead on what I could control," Robbins writes in his book "Money: Master the Game." "I could improve myself; I could find a way to serve, a way to do more, a way to become better, a way to add value."
Families still seem to be struggling with how to help their children learn to manage money.
Families still seem to be struggling with how to help their children learn to manage money. One indication is that parents can't keep from indulging their kids. In the 2016 Parents, Kids & Money survey from T. Rowe Price, 46% of parents said they have gone into debt to pay for something their kids wanted. Birthdays come with big price tags: 41% of parents spent $200 or more on a child’s birthday presents in the preceding 12 months, and the same percentage spent $200 or more on the child's birthday party. Among kids, 57% agree with the statement, "I expect my parents to buy me what I want." And not surprisingly, 58% of parents agree with the statement, "I worry that I spoil my kids."
Furthermore, 71% of parents are reluctant to talk with kids about money. When asked how often they take advantage of opportunities that occur throughout the day to talk to their kids about financial topics, less than half said they do so most of the time.
To jumpstart the conversation during Financial Literacy Month, here's my list of 10 things every kid should know about money by age 18, with painless ways to get the job done.
1. How to Save for a Goal
Start simple and start small, with a fun savings bank that's as much a toy as it is a teaching tool for preschoolers. It's tough for anyone to save for the future, especially young children with short time horizons. For example, don't expect your 6yearold to grasp why it's important to save for something as abstract as college. But she can learn to put aside her coins to buy a toy or collectible. To make the goal even easier to grasp, attach a photo of the coveted item to the savings bank and watch the money add up.
When children move into elementary and middle school, help them open a bank savings account. And the goal could be something bigger: a new tennis racket or soccer shoes, or a school field trip. Unfortunately, today's piddling interest rates don't give children much in the way of rewards. But you can help remedy that by offering to match their savings.
Once kids reach high school, college becomes a real goal that's right around the corner. It's fine to require them to save a portion of their earnings from a parttime or summer job to cover college costs. Every dollar saved is a dollar they don't have to borrow.
When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype. Digital currencies have quickly risen to prominence in the portfolios of many retail and institutional investors. At the same time, analysts have continued to caution investors about the volatile nature and unpredictability of cryptocurrencies.
If you’ve decided to invest in the cryptocurrency market, it’s important—same as with any other investment—to do your research. Below, we’ll explore what you should know before you invest.
Key Takeaways
 When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype.
 Take time to learn about the different currencies offered, in addition to researching blockchain technology.
 There are many primers on blockchain technology that are accessibly written for the layperson.
 When considering an investment, take the time to read the project’s white paper.
Consider Why You Are Investing in Cryptocurrency
Perhaps the most fundamental question you should ask yourself before making a cryptocurrency investment is why you’re doing it. There are myriad investment vehicles available, many of which offer greater stability and less risk than digital currencies.
Are you interested simply because of cryptocurrency’s trendiness? Or is there a more compelling reason for an investment in one or more specific digital tokens? Of course, different investors have various personal investment goals, and exploring the cryptocurrency space may make more sense for some individuals than for others.
Get a Feel for the Industry
It’s essential for investors—particularly those who are new to digital currencies—to develop a sense of how the digital currency world works before investing. Take time to learn about the different currencies offered. With hundreds of different coins and tokens available, it’s crucial to look beyond the biggest names, like Bitcoin, Ether, and Ripple.
In addition, it’s important to explore blockchain technology to get a sense of how this aspect of the cryptocurrency world works.
If you don’t have a computer science or coding background, some aspects of blockchain technology likely will be a challenge for you to parse out. There are many primers on blockchain technology that are written for laypeople.
Once you’ve identified the cryptocurrency (or cryptocurrencies) for investment, look into how those tokens make use of blockchain technology and whether they provide any innovations that differentiate them from the rest. By better understanding cryptocurrencies and blockchain technology, you’ll be more fully equipped to determine whether a potential investment opportunity is worthwhile.
Join an Online Community of Cryptocurrency Enthusiasts
Because the digital currency space is such a trendy area, things tend to change and develop quickly. Part of the reason is that a robust and very active community of digital currency investors and enthusiasts are communicating around the clock.
Get plugged into this community to learn about the buzz in the cryptocurrency world. Reddit has become a central hub for digital currency enthusiasts. There are also many other online communities with active discussions going at all times.
Read Cryptocurrency White Papers
More important than word of mouth, though, are the specifics of a digital currency itself. When you’re considering an investment, take the time to find the project’s white paper. Every cryptocurrency project should have one, and it should be easily accessible (if it’s not, consider that a red flag).
Read the white paper carefully; it should tell you everything about what the developers of the project intend for their work, including a time frame, a general overview, and specifics about the project. If the white paper does not contain data and specific details about the project, that is generally seen as a negative. The white paper is a development team’s chance to lay out the who, what, when, and why of their project. If the white paper feels incomplete or misleading, then it might speak to fundamental issues with the project itself.
Timing Is Key
After diligent research, you have likely developed a feel for the cryptocurrency industry and may have determined one or more projects in which to invest. The next step is to time your investment. The digital currency world moves quickly and is known for being highly volatile.
On one hand, buying into a hot new currency before it explodes in popularity and value may prompt investors to move equally quickly. In actuality, though, you’re more likely to see success if you monitor the industry before making a move. Cryptocurrencies tend to follow particular price patterns. Bitcoin often leads the way among digital currencies, which tend to follow its general trajectory. News of an exchange hack, fraud, or price manipulation can send shock waves through the cryptocurrency sphere, so it’s important to watch out for what’s going on in the space more broadly.
Finally, remember that digital currencies are highly speculative. For every overnight bitcoin millionaire, many other investors have poured money into the virtualtoken realm only to see that money disappear. Investing in this space means taking a risk. By doing your homework before making an investment, you help give yourself the best chance of success.
What is cryptocurrency?
Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or doublespend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
Is investing in cryptocurrency a good idea?
While analysts caution investors about the volatile nature and unpredictability of cryptocurrencies, some investors are willing to take the risk for the potential reward. It’s critical to do your research beforehand to determine if investing in cryptocurrency is right for you.
How do I learn more about the cryptocurrency that I want to buy?
To learn more about cryptocurrencies, join an online community of cryptocurrency investors and enthusiasts, such as that found on Reddit, to see what the community is discussing. Read the white paper that outlines specific details about the cryptocurrency project that you’re considering. Every project should have an easily accessible white paper—if it’s not, consider that a red flag.
The Bottom Line
When it comes to cryptocurrencies, one of the biggest challenges for investors is not getting caught up in the hype. Analysts continue to caution investors about the volatile nature and unpredictability of cryptocurrencies. If you’ve decided to invest in the cryptocurrency market, it’s important—same as with any other investment—to do your research. Consider why you’re interested in this particular investment vehicle, and familiarize yourself with cryptocurrencies and blockchain technology, to be more fully equipped to determine whether this type of investment opportunity is worthwhile for you.
Investing in cryptocurrencies and initial coin offerings (ICOs) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date when this article was written, the author owns Bitcoin and Ripple.
Question 1 : Find the compound interest on Rs. 10,000 at 10% per annum for a time period of three and a half years.
Solution : Time period of 3 years and 6 months means for 3 years, the interest is compounded yearly and for the remaining 6 months, the interest is compounded compounded half yearly. This means that we have 3 cycles of interest compounded yearly and 1 cycle of interest compounded half yearly.
So, Amount = P [1 + (R / 100)] 3 [1 + (
=> Amount = 10000 [1 + 0.1] 3 [1 + 0.05]
=> Amount = 10000 (1.1) 3 (1.05)
=> Amount = Rs. 13975.50
=> Compound Interest, CI = Amount – Principal = 13975.50 – 10000
Therefore, CI = Rs. 3975.50
Question 2 : If Rs. 5000 amounts to Rs. 5832 in two years compounded annually, find the rate of interest per annum.
Solution : Here, P = 5000, A = 5832, n = 2
A = P [1 + (R / 100)] n
=> 5832 = 5000 [1 + (R / 100)] 2
=> [1 + (R / 100)] 2 = 5832 / 5000
=> [1 + (R / 100)] 2 = 11664 / 10000
=> [1 + (R / 100)] = 108 / 100
=> R / 100 = 8 / 100
=> R = 8 %
Thus, the required rate of interest per annum in 8 %
Question 3 : The difference between the SI and CI on a certain sum of money at 10 % rate of annual interest for 2 years is Rs. 549. Find the sum.
Solution : Let the sum be P.
R = 10 %
n = 2 years
SI = P x R x n / 100 = P x 10 x 2 / 100 = 0.20 P
CI = A – P = P [1 + (R / 100)] n – P = 0.21 P
Now, it is given that CI – SI = 549
=> 0.21 P – 0.20 P = 549
=> 0.01 P = 549
=> P = 54900
Therefore, the required sum of money is Rs. 54,900
Question 4 : A sum of Rs. 1000 is to be divided among two brothers such that if the interest being compounded annually is 5 % per annum, then the money with the first brother after 4 years is equal to the money with the second brother after 6 years.
Solution : Let the first brother be given Rs. P
=> Money with second brother = Rs. 1000 – P
Now, according to the question,
P [1 + (5 / 100)] 4 = (1000 – P) [1 + (5 / 100)] 6
=> P (1.05) 4 = (1000 – P) (1.05) 6
=> 0.9070 P = 1000 – P
=> 1.9070 P = 1000
=> P = 524.38
Therefore, share of first brother = Rs. 524.38
Share of second brother = Rs. 475.62
Question 5 : A sum of money amounts to Rs. 669 after 3 years and to Rs. 1003.50 after 6 years on compound interest. Find the sum.
Solution : Let the sum of money be Rs. P
=> P [1 + (R/100)] 3 = 669 and P [1 + (R/100)] 6 = 1003.50
Dividing both equations, we get
[1 + (R/100)] 3 = 1003.50 / 669 = 1.50
Now, we put this value in the equation P [1 + (R/100)] 3 = 669
=> P x 1.50 = 669
=> P = 446
Thus, the required sum of money is Rs. 446
Question 6 : An investment doubles itself in 15 years if the interest is compounded annually. How many years will it take to become 8 times?
Solution : it is given that the investment doubles itself in 15 years.
Let the initial investment be Rs. P
=> At the end of 15 years, A = 2 P
Now, this 2 P will be invested.
=> Amount after 15 more years = 2 x 2 P = 4 P
Now, this 4 P will be invested.
=> Amount after 15 more years = 2 x 4 P = 8 P
Thus, the investment (P) will become 8 times (8 P) in 15 + 15 + 15 = 45 years
Problems on Compound Interest  Set2
This article has been contributed by Nishant Arora
Please write comments if you have any doubts related to the topic discussed above, or if you are facing difficulty in any question or if you would like to discuss a question other than those mentioned above.
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Doubling your money is very achievable — you may even double it twice, if you take these tips to heart.

The Motley Fool
This article originally appeared on The Motley Fool, written by Selena Maranjian.
“Step right up! Double your money!” It sounds like a scam or a carnival barker, right? But doubling your money isn’t just a pipe dream, or something that only happens over many decades.
Here are three strategies for doubling your money. Ideally, you’ll be able to double it — and then double it again!
No. 1: Invest for a long time — and regularly
Sure, you can double your money over several decades, but that’s if your money is growing at a rather slow rate, such as if it’s in a bank savings account, money market account, or certificates of deposit. You can probably do better than that, such as by investing in stocks.
Also, invest regularly. If you’re aiming for a nest egg sufficient to support you in retirement, it’s probably not going to be good enough to invest a chunk of money once and then wait for it to grow, or to add to it occasionally, whenever you have some extra cash. Ideally, you should be socking away money regularly — perhaps every month or quarter — and meaningful sums, too.
It needn’t take many decades to double your money, but it will take some time — and determination. Check out the table below:
Growing at 8% for  $5,000 invested annually  $10,000 invested annually  $15,000 invested annually 

10 years  $78,227  $156,455  $234,682 
15 years  $146,621  $293,243  $439,864 
20 years  $247,115  $494,229  $741,344 
25 years  $394,772  $789,544  $1.2 million 
30 years  $611,729  $1.2 million  $1.8 million 
SOURCE: CALCULATIONS BY AUTHOR.
No. 2: Aim for a solid growth rate
Clearly, your money will need to be growing at a good clip if you want to double your money in a nottoolong period. For most people, stocks are the best bet for longterm growth, and the table below, reflecting the research of Jeremy Siegel who studied returns from 1802 to 2012, shows that:
Asset Class  Annualized Nominal Return 

Stocks  8.1% 
Bonds  5.1% 
Bills  4.2% 
Gold  2.1% 
U.S. dollar  1.4% 
SOURCE: STOCKS FOR THE LONG RUN, BY JEREMY SIEGEL.
You might do even better than 8% in your investing, and the table below shows how long it takes to double your money at different growth rates. It’s illustrating the “Rule of 72,” where you divide 72 by your growth rate, and the result is the number of years it will take for your money to double:
Growth Rate  Years to Double 

2%  36.0 
3%  24.0 
5%  14.4 
7%  10.3 
10%  7.2 
12%  6.0 
15%  4.8 
20%  3.6 
25%  2.9 
SOURCE: AUTHOR CALCULATIONS.
The handy rule is surprisingly accurate much of the time, but it gets less so at growth rates above 25% or so.
No. 3: Avoid moneylosing blunders
Finally, as you diligently save and invest in stocks regularly over many years, aim to avoid as many blunders as possible. There are lots of common investing mistakes to avoid, such as not understanding what you’re investing in or trading too frequently. There are also some risky investment strategies and techniques to avoid, such as buying into penny stocks or investing with margin.
The more errors you avoid, the less money you’ll likely lose, and the faster you’ll see your portfolio grow. For best results, keep reading and learning about investing throughout your financial life.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The Motley Fool
Guest Author at MyWallSt
The Motley Fool has been one of the industry's experts for years and is one of our contributors here at MyWallSt.
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Mutual Funds SIP: A small sum of just Rs 100 per day can turn you into a crorepati. The trick is to do it in a way that gets you maximum profit.
Mutual Funds SIP: Investing in the early phase of your career leads to the accumulation of wealth. This helps in setting up a financially secure life postretirement or even during emergencies. For instance, coronavirus has cost many people their jobs, others’ salaries have been cut and more people may lose their employment going forward. So, in this day and age, preparing for the worst is teh best strategy. Also, there can be chances when people start thinking of retiring around 55 years of age with a satisfactory amount of money in their bank.
The best way forward is Systematic Investment Plans (SIP of mutual fund houses. This has emerged as the most attractive investment tool among the earning individuals who are around 25 years of age who lack a lump sum amount to invest at one point in time.
See Zee Business Live TV streaming below:
Speaking on the reason for the rise in mutual funds SIP among the earning individuals who are around 25 years of age, Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, “When you are young and in the early phase of your life, you have little savings. But, if you are sure about your longterm investment goal, then mutual funds SIP can help you achieve that longterm investment goal without requiring any professional help. These days, mutual funds SIP calculator is easily available via Google search. So, people can easily find out the monthly mutual funds SIP required to meet their longterm investment goals.”
Asked about the mutual funds SIP returns they can expect in the long term, Jhaveri said that if the mutual funds SIP is for 1015 years, at least 12 per cent return can be expected. However, if the period is for 25 to 30 years, then the return can go up to 1517 pct even, depending upon the last 23 years of stock market performance before the maturity of the mutual funds SIP.
However, SEBI registered tax and investment expert Jitendra Solanki said that just sticking to the basics will give you returns that others are also getting. To become rich one should be able to get more returns with the same investment pattern. For that, you need some adaptation like stepping up your monthly SIP annually. Solanki was of the view that in general, one gets around 1015 per cent annual increase in one’s salary and hence he or she needs to increase one’s mutual funds SIP as well. Increasing 15 per cent mutual funds SIP annually is an ideal way of getting a bigger maturity amount after the investment period.
Assuming 15 per cent mutual funds SIP returns in 30 years, suppose one starts a SIP of Rs 3,000 per month, one’s maturity amount after 30 years will be Rs 2,10,29,461. In this without stepup technique, the mutual funds SIP of Rs 3,000 per month will grow up to Rs 2,10,29,461. In this Rs 2,10,29,461, the net investment done by the mutual funds SIP investor is Rs 10,80,000 while the wealth gained is Rs 1,99,49,461.
However, if someone adopts the annual stepup technique in one’s mutual funds SIP, as per the mutual funds calculator, the same Rs 3,000 SIP for the period of 30 years giving the same 15 per cent returns will grow up to Rs 7,74,73,568. In this mutual funds SIP investment, net investment of the mutual funds SIP investor is Rs 1,56,37,884 while the wealth gained in 30 years of investment is Rs 6,18,35,684 that adds up to Rs Rs 7,74,73,568.
However, there are chances of the investor getting higher returns of up to 17 per cent if the stock market behaves normally in 34 years before the maturity fo the mutual funds SIP investment. In that case, the net maturity amount will be to the tune of Rs 10,72,57,314.
So, your Rs 3,000 per month or Rs 1,00 per day can grow up to Rs 10.72 crore provided you stick to the basics and follow the abovementioned trick as suggested by the mutual funds investment experts.
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The allure of day trading stocks is undeniable: Earning your living executing trades from the comfort of your home seems far more exciting than most 9to5 gigs. Trouble is, careless or inexperienced day traders can wreck their portfolios in the blink of an eye.
But if you're still interested in this strategy, read on to learn how day trading works and the ways you can help minimize its risks.
What is day trading?
Day trading is the practice of buying and selling stocks in a short time frame, typically a day. The goal is to earn a tiny profit on each trade and then compound those gains over time.
With the rise of online stock brokers like Robinhood and cheap or free trades, day trading became a viable (albeit very risky) way for retail investors to turn a few days’ worth of quick wins into a substantial bankroll.
In practice, however, retail investors have a hard time making money through day trading. A 2010 study by Brad Barber at the University of California, Davis, suggests that just 1% of day traders consistently earn money. The study examined trades over a 14year period, from 1992 to 2006.
The very small number who do make money consistently devote their days to the practice, and it becomes a fulltime job, not merely hasty trading done between business meetings or at lunch.
If this all sounds like a bit more risk than you’re willing to take on, you can do what many investors do: engage in longterm, buyandhold investing in a welldiversified portfolio containing lowcost index funds and ETFs . Make regular investments into the account and let the power of growing businesses lead your portfolio to longterm gains. (Read more about other stocktrading strategies .)
It's not as exciting as day trading, but it's far more likely to grow your wealth over the long term. However, if day trading is something you must try, learn as much as you can about the strategy first.
How day trading works
Volatility is the name of the daytrading game. Day traders rely heavily on stock or market fluctuations to earn their profits. They like stocks that bounce around a lot throughout the day, whatever the cause: a good or bad earnings report, positive or negative news, or just general market sentiment. They also like highly liquid stocks, ones that allow them to move in and out of a position without much affecting the stock’s price.
Day traders might buy a stock if it’s moving higher or shortsell it if it’s moving lower, trying to profit on a stock’s fall. They might trade the same stock many times in a day, buying it one time and then shortselling it the next, taking advantage of changing sentiment. Whichever strategy they use, they’re looking for a stock to move.
Buying on margin
To increase profits, many traders use borrowed money to make their trades, a practice known as “buying on margin.” With a margin account, you can use the securities you already own as leverage to borrow up to 50% of the value of the security you’re going to buy. Leveraging like this can augment profits beyond what you could achieve with your own cash, but it doesn’t come without significant risks — your losses will be amplified, too.
Here’s how it works. If you wanted to buy $20,000 worth of a stock, you could purchase $10,000 worth of shares, and borrow the other $10,000 from your brokerage firm. If you bought the stock at $10 per share and it later increased 20% to $12 per share (and you sold at that price), you would have $24,000. After paying back the $10,000 loan to the brokerage firm, you’re left with $14,000 — a 40% increase over the $10,000 you invested with your own money. Without the borrowed money, your return would have only been 20%.
But what if the stock price had fallen 20%? Same rules apply, but the other way around. If you sold at $8 per share, you would only have $16,000. After paying back the $10,000, you’re left with $6,000 — a 40% loss from your original investment.
One thing to note: The examples don’t include the interest you’ll pay on the margin loan, but this should also be a consideration.
Learning where and how to invest is intimidating. So intimidating that many people don’t make it to the next step of figuring out how to project the growth of their investments — even though that’s pretty crucial to your making financial plans and setting goals.
What if you could plug some numbers into a simple formula and find out how long it would take for your investments to double?
That’s exactly what the Rule of 72 does. Here’s what you need to know about how it works and why it’s a key tool to keep in your investing toolbox.
What is the Rule of 72?
The Rule of 72 is a mathematical principle that estimates the time it will take for an investment to double in value. The mention of math might make your jaw clench, but the Rule of 72 is actually a very basic formula that anyone can use.
Simply take the number 72 and divide it by the interest earned on your investments each year to get the number of years it will take for your investments to grow 100%. Or to drop by 50%.
However, you can only apply this rule to compounding growth or decay. In other words, you can only use it for investments that earn compound interest, not simple interest . With simple interest, you only earn interest on the principal amount you invest. Compound interest is “interest earned on interest”: It accrues on accumulated interest, in addition to the principal.
Because interest is essentially being added into your principal, and used as the base for fresh interest calculations, compounding makes your investment grow exponentially. Meaning: As interest accrues and the quantity of money increases, the rate of growth becomes faster.
It doesn’t have to be investment interest; anything that augments your principal creates “the magic of compounding.” For example, if you reinvest the dividends you earn on your investments, your earnings are being compounded. Therefore, the Rule of 72 applies.
On the other hand, if you choose to withdraw your dividends rather than reinvest them, your earnings might not compound, and the Rule of 72 wouldn’t work.
How to calculate the Rule of 72
To calculate the Rule of 72, all you have to do is divide the number 72 by the rate of return. You can use the formula below to calculate the doubling time in days, months, or years, depending on how the interest rate is expressed. For example, if you input the annualized interest rate, you’ll get the number of years it will take for your investments to double.
You’ll notice the formula uses the “approximately equals” symbol (≈) rather than the regular “equals” symbol (=). That’s because this formula offers an estimate rather than an exact amount, and it’s most accurate when used on investments that earn a typical rate of 6% to 10%.
While usually used to estimate the doubling time on a growing investment, the Rule of 72 can also be used to estimate halving time on something that’s depreciating.
For example, you can use the Rule of 72 to estimate how many years it will take for a currency’s buying power to be cut in half due to inflation, or how many years it will take for the total value of a universal life insurance policy to decline by 50%. The formula works exactly the same either way — simply plug in the inflation rate instead of the rate of return, and you’ll get an estimate for how many years it will take for the initial amount to lose half its value.
Rule of 72 example
Let’s say you invest $1,000 at a 9.2% annual rate of return, which is the average stock market return for the last 10 years. To calculate the doubling time using the Rule of 72, you’d input the numbers into the formula as follows:
72 / 9.2 ≈ 7.8
This means that your initial $1,000 investment will be worth $2,000 in about 7.8 years, assuming your earnings are compounding. If you instead invest $10,000, you’ll have $20,000 in just under eight years. This also means that $20,000 will double again in another eight years, assuming the same rate of growth — in other words, you’ll have $40,000 in less than 16 years.
All of this is also assuming you’re not adding to your initial investment over time, which makes the fact that your money is doubled in less than a decade all the more impressive.
Alternatives to the Rule of 72
The number 72 is a good estimator in most situations and, thanks to it being an easily divisible number, it makes for simple math. It’s best for interest rates, or rates of return, between 6% to 10%. Most investment accounts, including retirement accounts, brokerage accounts, index funds, and mutual funds fall into this range of return.
But with a different range, you might want to fiddle a bit — same formula, but different numbers to divide by. An easy rule of thumb is to add or subtract “1” from 72 for every three points the interest rate diverges from 8% (the middle of the Rule of 72’s ideal range).
At really high interest rates, for example, using the number 78 will give more accurate results. On the other hand, 69 or 70 are more accurate for lower interest rates and interest that compounds daily. Daily compounding is rare in investing and mostly happens with savings products such as highyield savings accounts and certificates of deposit (CDs).
The financial takeaway
The Rule of 72 offers a quick and easy way for investors to project the growth of their investments. By showing how quickly you can double your money with minimal effort, this rule beautifully demonstrates the magic of compounding for building wealth.
Bitcoin millionaires seem to be popping up all over the internet, wherever you click. The more often this happens, the more people get interested in Bitcoin and other “cryptocurrencies”.
For good reason: in June 2013, one Bitcoin was worth less than US$100. Today if you’ve got one it’s worth US$6,629.75. And just in the past year, Bitcoins have jumped more than nine times in value.
15 Nov 2016: US$709.82
15 Nov 2017: US$6,629.75
Talk about a leap! It’s easy to feel like you’re missing out, wondering if you should have bought some when this digital currency came onto the scene in 2009, and be kicking back in Bora Bora sipping bubbles as we speak.
But is it really investing?
Have a look at another year in the life of Bitcoin.
30 November 2013: US$1,149.14
29 November 2014: US$378.91
That wasn’t that long ago. After a drop in value like that – imagine if your house had gone from being worth $1.2 million down to $379,000 – who would have predicted the recent skyrocketing of Bitcoin?
And what about all the other cryptomoney out there? From 0x and Abjcoin to Zcash and Zurcoin, at this writing there are 1,279 cryptocurrencies and counting. Bitcoin is the oldest and biggest in volume, followed by Ethereum, Tether, Litecoin, Dash and Ripple.
Instead of the IPOs (initial public offerings) of the world of shares, now there are ICOs (initial coin offerings). These are typically unregulated campaigns to launch new cryptocurrencies, but instead of an equity share of a company, these offer the coins themselves.
Care to predict which will be the next Bitcoin? It’s anybody’s gamble, really.
Sounds like speculation
The difference between investment and speculation is important, but it’s not always easy to discern. The simplest way I can put it is using the example of buying land:
 If you’re buying it to farm, growing produce that generates a profit each year – that’s investing.
 If you’re buying it to “land bank”, doing nothing but holding on to it until you can find someone else to pay more for it down the line – that’s speculating.
Hold on, you might say, investments can generate wealth both from the income they generate and from capital growth (becoming worth more). True.
But investments must produce regular income for you beyond a simple shift in market price – which is the key difference between true investing and mere speculation. It’s one of the reason the traditional kinds of investments of shares, property, bonds and cash get often mentioned here. These investments are always financially valued by their income.
If you’re just taking a guess on whether that market price of a cryptocurrency will soar, that’s more like gambling. Now I’ve got nothing against gambling in itself (unless you can’t stop). But if it’s a game, it should at least be entertaining, right?
“The line separating investment and speculation, which is never bright and clear,” says Warren Buffett, “becomes blurred still further when most market participants have recently enjoyed triumphs.” Which is of course what we are seeing with Bitcoin millionaires. “Nothing sedates rationality like large doses of effortless money.” Then he adds, somewhat ominously: “But a pin lies in wait for every bubble.”
Will your digital wallet get picked?
The world of cryptocurrencies – and the services wrapped around them – come with a slew of new risks for you and me. The Financial Markets Authority has just put out some new material to help investors (and speculators, I’m sure) to stay safe.
Here are key things to know about cryptocurrencies:
 Before you invest in cryptocurrencies or services like digital wallets, you need to understand the risks that come with them.
 Using cryptocurrencies may make you more of a target for scammers.
 Your digital wallet can be picked – or “hacked”, I should say – just like a real wallet. Have a look at this story where $300m of Ether was accidentally lost!
 Most cryptocurrency exchanges have no connection to New Zealand – they are unregulated and exclusively online. This makes it hard to find out who’s behind an offer, an exchange, and the buying and selling. It also means it will be much more unlikely for you to get your money back if things go wrong.
 As we’ve seen, cryptocurrencies can have huge swings in value that happen quite quickly.
 They aren’t accepted in the same way a traditional, nonvirtual currency might be.
You’ll find more on cryptocurrencies, and the risks that come with them, on the FMA site.
It feels just like yesterday when my daughter Nina turned one year old and was an adorable chubby little girl. She will turn 13 in three months! She loves reading, skiing, tennis, travel, choir and piano. Lately I find her watching Youtube videos on Minecraft for hours and she has created some intricate theme parks with rollercoasters and petting zoos. As a parent, I feel the urgency to teach her important skills before she goes off to college. Financial literacy and money management skills are critical for her success and happiness. So this blog post is written for her and other teens in your life.

Write Down Your Needs vs. Your Wants. It’s easy to spend money. What’s not easy is spending money wisely. One way to help you spend money wisely is to separate your wants from your needs and spend money primarily on your needs. Try to think of the needs as immediate and what you will need in the next few months. Write down what you need with those costs in one column and write down what you want and those costs in another column. Ask yourself “Can I do without these wants?” and “Are there alternatives to my wants?”. For example, you have decided that you need a cell phone. Is a used cell phone an alternative to a brand new cell phone freeing up money to spend on other items you need? Writing them down helps you prioritize your spending.
As you work on your monthly budget, consider allocating your income between these four categories: Save , Spend , Share , and Invest . You can start with 30% Save, 50% Spend, 10% Share, and 10% Invest.
Parents, I believe you should teach money management skills early by sharing your own money stories. Tell them about the mistakes you have made and the lessons you have learned. Be open to sharing your challenges in earning money and paying for unexpected expenses. Setting good examples yourself by following disciplined savings and investing principles will help you raise financially savvy kids. Of course, your kids will make some mistakes and pay the price. That’s ok, as they will remember what you have taught them and after all, you will be cool again when they become adults and parents.
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