Should You Really Be Paying Off Your Kids' Student Loans?

Should You Really Be Paying Off Your Kids' Student Loans?

 

With college costs continuing to climb, many families are learning the hard way that obtaining a degree often means taking on loads of debt in the process. But while plenty of students are taking out loans in their own names, a large number of parents are assuming the responsibility of paying them off.

In a recent survey by College Ave Student Loans, 55% of parents said their children took out loans to cover the cost of college; yet 72% plan to help tackle some or all of their kids' balances. Meanwhile, 10% of parents who have kids with student loans say they're going to pay off the entire balance on their children's behalf. 

Of course, helping your kids tackle their student debt is a generous thing to do in theory. Unfortunately, it may prove to be a dangerous move in practice.

Can you afford to part with that money?"Can you afford to part with that money? If you're on track for retirement and have plenty of disposable income to spare at the end of each month, then by all means, go ahead and help your children tackle their student debt. But if your long-term savings need a boost, then you really can't afford to be parting with any sum of money, especially if retirement isn't all that far off.

Imagine you make a $300 monthly payment toward your child's student loans over a 10-year period. If you were to save that money in an IRA or 401(k) instead and invest it at an average annual 7% return (which is doable with a stock-heavy portfolio), then you'd add about $50,000 to your nest egg. That's a lot of money to give up in retirement, especially if you don't have any income other than savings and Social Security coming your way.

Your children, on the other hand, have their entire lives ahead of them to pay off their college education, so while you might think you're doing them a favor by taking that burden off their shoulders, in reality, you could be putting everyone in a tough spot. The reason? If you fall short on retirement income because you paid down your kids' student debt instead of saving, you may have no choice but to rely on your grown children for financial support during your senior years. Talk about an unwanted turn of events.

Set your kids on a successful path"Set your kids on a successful path "&&&"""""set up a budget before heading off to school, and 68% expect their kids to get a job during their studies. Teaching your children to budget is a great way to help them keep their spending in check, while working part time while pursuing a degree is an excellent means of saving up cash to pay down student debt before interest really starts accruing." While you definitely shouldn't plan on paying off all, or even some, of your kids' student loans, that doesn't mean you can't help them better manage that debt both during and immediately after college. In the aforementioned survey, 74% of parents helped their children set up a budget before heading off to school, and 68% expect their kids to get a job during their studies. Teaching your children to budget is a great way to help them keep their spending in check, while working part time while pursuing a degree is an excellent means of saving up cash to pay down student debt before interest really starts accruing.

Similarly, it pays to check in on your children once they graduate college and head into the working world on their own. This means making sure they stick to a budget and reviewing the repayment terms of their student debt so that they don't fall behind on their obligations.

It's noble to want to spare your kids the hassle of dealing with student debt, but you shouldn't do so at the expense of your retirement. Teach your kids to handle their money wisely during and after college, and encourage them to make smart choices that work to minimize their debt, like opting for a state school over a private one. With any luck, they'll graduate with a manageable amount of debt, and once they pay it off, you'll all have something to celebrate.




Happy Investing
Source: Yahoofinance.com

Here's When Social Security Might Have to Cut Benefits

Here's When Social Security Might Have to Cut Benefits



Social Security is on shaky ground, so much so that rumors abound of the program's potential demise. Now the good news is that contrary to common myth, Social Security is by no means at risk of going broke. The reason? Its main source of revenue is payroll taxes, and so as long as we continue to deduct Social Security taxes from wages, the program can continue to exist." It's no secret that Social Security is on shaky ground, so much so that rumors abound of the program's potential demise. Now the good news is that contrary to common myth, Social Security is by no means at risk of going broke. The reason? Its main source of revenue is payroll taxes, and so as long as we continue to deduct Social Security taxes from wages, the program can continue to exist.

Trustees Report, those cash reserves are expected to run dry in 2035. At that point, recipients might face as much as a 20% reduction in scheduled benefits."That said, Social Security's costs are such that they're expected to exceed its total income through 2093. To compensate in the coming years, Social Security has its trust funds to tap. But according to the latest Trustees Report, those cash reserves are expected to run dry in 2035. At that point, recipients might face as much as a 20% reduction in scheduled benefits.

On the one hand, that's an improvement from the previous year's report, which stated that the program's trust funds would be depleted in 2034. It's also a slight improvement over the previously projected benefits cut -- 20% versus the formerly reported 21%. Still, it's hard to argue the fact that Social Security is in bad shape, and if lawmakers don't manage to step in with a fix, millions of seniors stand to get hurt.

Taking savings matter into your own hands on their own in the first place. In a best-case scenario -- meaning, no cut in benefits whatsoever -- Social Security is only designed to replace about 40% of the average earner's pre-retirement income. Most seniors, however, need roughly double that amount to live comfortably."Though a potential reduction in Social Security is far from good news, the reality is that those benefits were never designed to sustain seniors on their own in the first place. In a best-case scenario -- meaning, no cut in benefits whatsoever -- Social Security is only designed to replace about 40% of the average earner's pre-retirement income. Most seniors, however, need roughly double that amount to live comfortably.

That's why saving independently is the best thing you can do to secure a decent lifestyle in retirement. If you have access to a 401(k) plan through work, you can contribute up to $19,000 this year if you're under 50 or up to $25,000 if you're 50 or older. If a 401(k) isn't on the table, your next best bet is an IRA. The contribution limit this year is $6,000 if you're under 50 or $7,000 for the 50-and-over set.

Saving some amount of money on a consistent monthly basis, you can more than compensate for a future reduction in Social Security. Case in point: If you're 40 years away from retirement, setting aside $300 a month for four decades will leave you almost $720,000 richer, assuming your savings are invested at an average annual 7% return during that time. Make it $425 a month, and you'll be sitting on over $1 million, all other things being equal."Now many workers aren't in a position to max out a retirement plan -- especially not a 401(k). But if you make a point of saving some amount of money on a consistent monthly basis, you can more than compensate for a future reduction in Social Security. Case in point: If you're 40 years away from retirement, setting aside $300 a month for four decades will leave you almost $720,000 richer, assuming your savings are invested at an average annual 7% return during that time. Make it $425 a month, and you'll be sitting on over $1 million, all other things being equal.

It's too soon to know whether future beneficiaries will indeed experience a reduction in their Social Security income. There's a lot to be gained by coming up with a fix for the program's shortfall so that millions of seniors aren't at risk of dipping below the poverty line. But until there's an official solution in place, we're all better off preparing for the worst and proactively saving for our golden years rather than relying on money that may or may not be there when we need it.




Happy Investing
Source: Yahoofinance.com

A 3-Step Checklist for Your Retirement

 

Are you on track for a comfortable retirement? We mean one in which you can vacation in Aruba if you choose, see the grandkids often, and have the same lifestyle as when you were working. Retirements like this are not spontaneous events. They're created over time. Planning is the way to create them.

It's a good idea to develop a specific retirement plan, whether you're 23 or 63. You need to have a working estimate of what your expenses will be once you retire, what your projected income will be, and how much you need to save. Once you develop it, review it every three years to make sure you're still on track.


Reviewed every year, so you can be sure you are still meeting your performance goals. We're talking about a more comprehensive planning process in which you think about where you are financially versus where you want to be in your mid-60s and onward." Note that we don't mean just review your retirement portfolios. The composition and performance of your overall portfolio -- stocks, fixed income, and so forth -- should be reviewed every year, so you can be sure you are still meeting your performance goals. We're talking about a more comprehensive planning process in which you think about where you are financially versus where you want to be in your mid-60s and onward.

You should also review the comprehensive plan every three years. Here's why. You could sit down, roll up your sleeves, and come up with projected expenses today. But life may have big changes in store. You could move to a place where real estate prices and taxes are much higher than in your old stomping grounds. You could have a child. Maybe you or your partner will decide to stop working and stay home with the kids.

Do a larger family, higher real estate prices, or becoming a one-earner household affect how much you can save for retirement? Do they affect the expenses you're likely to have once you retire? They're certainly likely to!

The same is true of all life events. New jobs, marriage, and children are likely to have an impact that affects your retirement. So are real estate choices. A significant change in health, job loss, economic downturns, promotions: All are changes that can affect retirement planning.

As a result, you should review your retirement plan periodically to make sure you are on track for a comfortable retirement. Here's a checklist. Make these three estimates now and update them triennially.


1. Project your expenses in retirement - 80% of their pre-retirement income will be needed to maintain their lifestyle in retirement, and it could be more."You need solid estimates for your expenses in retirement. There's a widespread belief that financial needs drop significantly once we retire. It ain't so. Prudent planners will anticipate that at least 80% of their pre-retirement income will be needed to maintain their lifestyle in retirement, and it could be more.

$399,000 over the rest of their lifetime in healthcare costs. The only expenses likely to drop are those associated with working, such as commuting and clothing costs."Why? Well, look through your current expense categories and consider which ones you'll still need in retirement. Food, utilities, taxes, and insurance payments are all likely to be about the same, unless you move to a lower-cost area. Some expenses, such as healthcare costs, may rise, as people tend to need more medical attention as they age. A couple retiring at 65 is estimated to need $399,000 over the rest of their lifetime in healthcare costs. The only expenses likely to drop are those associated with working, such as commuting and clothing costs.

Ask yourself these questions. Do you have any expenses likely to fall or be eliminated entirely in retirement? Are you likely to have your mortgage paid off in retirement, for example? If so, you can eliminate that expense. But a growing number of older people are still paying off mortgages when they retire. If you're in that category, plan for it. Are you likely to still be paying off credit card debt? Student loan debt? A growing number of older people are paying off these debts.

Which of your expenses will likely be about the same? Food? Eating out? Entertainment? Insurance? You want a sense of which categories will be roughly the same in retirement.

Then, calculate which of your expenses may rise. Healthcare is certainly one, but energy costs have also risen steeply in recent years. You'll need to heat your house and keep it cool, and you'll need gas for your car.

More than 3% per year. It's smart to factor 3% inflation at a minimum into your projected costs for nearly every category. Costs you know to be stable, such as payments on a fixed-rate mortgage, constitute the only exception. In other words, if you currently pay $800 a month on food, assume that amount will rise about 3% every year."We can't leave this section without touching on inflation as a factor in expenses. Inflation is always with us, and while it hasn't been a big factor lately, over the long run it erodes your money's purchasing power at a rate of slightly more than 3% per year. It's smart to factor 3% inflation at a minimum into your projected costs for nearly every category. Costs you know to be stable, such as payments on a fixed-rate mortgage, constitute the only exception. In other words, if you currently pay $800 a month on food, assume that amount will rise about 3% every year.


2. Estimate your income at retirement - Next, you want a reasonable forecast of your income at retirement. Having an income estimate allows you to figure out the pieces of the pie you'll have, and thus the pieces of the pie you'll need to save.

Social Security statement, check it to see the benefit projections for you. The average right now is around $17,500 per year. Yours might be higher or lower, depending on your earnings. While Social Security benefits are not lavish, they do provide an important foundation for many older people. You want to know yours."If you're receiving a Social Security statement, check it to see the benefit projections for you. The average right now is around $17,500 per year. Yours might be higher or lower, depending on your earnings. While Social Security benefits are not lavish, they do provide an important foundation for many older people. You want to know yours.

The estimate changes over time depending on your earnings and other factors, so be aware you need to check periodically.

Yes, we know that Social Security is among the programs often threatened with a chopping block in Washington. As a result, it's nearly impossible to predict what will happen with Social Security in the future. But, long story short, it's also a widespread and popular program likely to continue, especially if you're within a decade or so of retirement.

Then, estimate your income from your current retirement nest egg. Unless you have other income, such as rent checks from a property you own, this will constitute the rest of your cash flow in retirement.

4% rule and feel secure it won't run out. If you have $10,000 saved right now, in other words, you could withdraw $400 per year. If you have $100,000 saved, you could withdraw $4,000, or roughly $333 per month." Generally speaking, retirees can withdraw money from their nest eggs using the 4% rule and feel secure it won't run out. If you have $10,000 saved right now, in other words, you could withdraw $400 per year. If you have $100,000 saved, you could withdraw $4,000, or roughly $333 per month.


3. Forecast your retirement savings - The final item on this checklist is to estimate the savings you'll have at retirement given your current rate of saving, or the amount you'll need if you're not currently saving.

Economic Policy Institute."If you don't have any retirement savings, don't panic. You have plenty of company; more than half of American families have no retirement savings, according to the Economic Policy Institute.

Start by establishing a target. Again using the 4% rule, a good target is 25 times your estimated income at retirement. If you need $60,000 per year in retirement, for example, your nest egg would need to be $1.5 million.

Retirement calculator and build in multiple projections. A retirement calculator allows you to see how much your nest egg can grow over time. That's the chief reason that it's important to start saving as early as you can."It's a good idea to use a retirement calculator and build in multiple projections. A retirement calculator allows you to see how much your nest egg can grow over time. That's the chief reason that it's important to start saving as early as you can.

A person who begins putting $200 per month into a retirement savings account at 25, for example, will have saved $96,000 by the time they hit 65. But if we assume even a 6% annual return on the savings, on the low side of the historical average for the stock market, it rises significantly. That portfolio would be worth a handsome $393,700 at retirement, according to a report from J.P. Morgan Asset Management.

Even if you start saving later, the returns are still enough to power an impressive retirement nest egg. That $200 monthly amount contributed steadily from the age of 35 to 65 totals just $72,000 in contributions, but can grow to more than $200,000 if you boost your savings by 6% annually.

The key is to start saving for retirement as soon as possible. The best places are tax-advantaged retirement savings vehicles such as 401(k)s and Individual Retirement Accounts (IRAs).




Happy Investing
Source: Yahoofinance.com

What I learned about investing since the March 2009 stock market bottom

What I learned about investing since the March 2009 stock market bottom

“What I relearned is that history is a good starting point and guide for perspective, but investors have to approach the future with an open mind to different outcomes. Flexibility is key,” says SunTrust chief markets strategist Keith Lerner on what he has taken away over the past 10 years since the bottom.
 

Here are some takeaways from the past 10 years from yours truly, in no particular order of importance. Let them be your guide looking out into the next 10 years in the markets.

1. The Federal Reserve will do all it can to prop up an overly weak stock market via interest rate policy and open mouth operations. They obviously won’t admit as much, but it has proven true under Fed chairs Ben Bernanke, Janet Yellen and now Jerome Powell.

2. Many executives have forgotten the lessons from the Great Recession. They continue to err on the side of high amounts of optimism in their financial forecasts. Meanwhile, they remain inclined to utilize big stock buyback plans to boost their stock price. Both could be powerful elixirs to stock prices, until they aren’t.

3. The rise of artificial intelligence, the cloud and other transformational technologies will be among the biggest drivers of profits for large companies over the next 10 years. Why? Human capital will be ushered out the door.

4. Boardrooms remain ill-equipped to handle an attack from an activist investor community that is growing in size and resourcefulness. That’s good news for investors, bad news for the ill-prepared.

5. Machine-driven trading will only amplify herd mentality among those in the market. That’s good news for traders and high-frequency trading platforms, bad news for long-term investors that will be whipsawed out of their long-time holdings.

6. And because of the machines, overvalued stocks could become even more overvalued until one word on a conference call upsets the algorithms that drive the machines.

7. Many investors are still lacking in a solid knowledge base as to how: (1) geopolitics can impact a company’s future; (2) interconnected the world markets are becoming each day; and (3) environmental issues impact a company’s future.

8. Quarterly earnings are useless — time to move to six-month reporting schedules.

Expect the unexpected

10 years ago most investors would have not believed that the U.S. would still be in a bull market today (the second strongest and longest in history), that later this year the U.S. economy is set to break the record for the longest expansion in history (>10 years), and that the 10-year U.S. Treasury yield would have closed at a record low below 1.4% in July of 2016,” SunTrust’s Lerner says.

So true.

’The most important lesson learned by this writer: expect the unexpected and don’t trust anyone, trust your own due diligence.

Now get out there and try to find the next Netflix so you can celebrate in 2029.

 
Happy Investing

When I Have A Demat Account, Why Should I Use A Mutual Fund?

Making investments on your own or hiring fund managers? What makes more sense for you?

 

Given the recent run-up in the share market, I’ve noticed a few friends and colleagues tempted to do some share trading on their own. I’ve wondered why. Maybe, my friends just don’t know what it takes to invest properly and not lose money?

What it takes to beat a mutual fund manager

Investing well, without losing money, is not just some random activity. There are over 5,000 listed companies in India, and the top 250 companies represent over 80% of the market value. The remaining 4,500+ are all small companies whose business prospects fluctuate a lot. This extreme up and down fluctuation in the share prices of small companies is what generates excitement and greed in an emotional roller-coaster. Daily spam SMS text messages from unknown brokers do not help.

Investing well to make money consistently over time is actually just boring and disciplined hard-work. It involves:

• Studying industry reports and news in order to do an in-depth analysis of industries, regulations, business strategies and corporate governance issues
• Focusing on those companies with sound business models, strong growth opportunities, sustainable competitive advantages (called “moats”), and quality management
• Researching the business fundamentals of the chosen set of companies through interactions with their management, employees, customers, competitors and independent industry professionals. This is almost impossible to do for an individual investor
• Valuing the intrinsic (or ideal) share price based on the business fundamentals and growth prospects of each company. These valuation methods can change depending on the industry and market situation
• Constructing a portfolio by sizing how many shares of each company to buy based on how convincing the argument is, while at the same time ensuring the portfolio is adequately balanced, in order to do well at various points in time, as the prospects of the economy and various industries evolve
• Actually doing the buying to build your ideal portfolio based on varying market prices. This may take weeks, months or even years depending on how expensive certain shares are
• Building rules to decide when to reduce positions or exit a particular stock, which is arguably even harder than deciding when to buy
• Sticking to those rules through up and down market cycles. This is the hardest of them all since we are emotional creatures with reptilian brains that are wired to buy (high) during euphorias and sell (low) during panics, which is precisely the opposite of what one should do. Ignoring financial news commentary (noise) is usually the best course of action.
  
  As you can see, that’s a lot of work and professional mutual fund managers dedicate their life to becoming better at this. Each of us, with a full-time job, will find it difficult, if not impossible, to gain the kind of expertise they bring to work for our investments.

So what should you do

If you have a job from Monday to Friday, stop wasting time dabbling in investing directly. Go through a professional fund manager - usually, he or she works at a mutual fund. You trust trained professionals in other spheres of your life, do that with your money too.

Part-time investing based on random tips, feelings, emotions, guesses or friends’ opinions is at best a serious distraction and at worst pure gambling. Instead, with that time saved:

• Do a Coursera or Udemy course in Machine Learning, front-end web programming, app development or anything to delight your customers, impress your manager and increase your income. I guarantee you will make and save more this way, than trying to coax your investments to return the money by staring at the trading website.
• Exercise / do yoga/ run marathons to build the mental resilience and fortitude that is absolutely needed to stay steady through up and down market cycles. Share prices do not go up in a straight line and there will be many periods where your conviction will be tested. You need to stay healthy to stay invested for the long-haul and benefit from compounding.
• Have fun / spend time with family and friends. You work so hard for just this. Enjoy. Don’t only live for tomorrow. Conversely, tomorrow does come, so prepare for it, but in the right measure.

Ultimately you need to clearly understand what you’re good at, and what you’re not (your “circle of competence”). Focus on what you’re good at and outsource the rest to trained professionals - be it a doctor, a lawyer, a gym instructor or mutual fund manager. Focus your time on making more and saving more, both of which are under your control. Just because you can, doesn’t mean you should.

Happy Investing

Source: Valueresearchonline.com

9 important stock-related metrics

9 important stock-related metrics


We tell you the meaning of 9 basic metrics that you can't do without if you are into stock investing


The budding stock-market investor doesn't have to just cope with the erratic nature of the market; he also has to understand the underlying metrics of stocks to make sense of them. Here we have compiled for you a list of basic stock-related metrics. On www.ValueResearchOnline.com, you can find these metrics for any listed Indian company.


1. Stock price: Stock price is simply what a stock costs in rupees. If the stock price appreciates, you have got gains on the stock. If it declines, you are making losses. Since investors' fortunes are tied to the stock price, it is keenly tracked by them.

While the stock price is widely followed, it communicates very little about the stock on its own. In order to put stock price in perspective, you will need to combine it with some other metric such as earnings. For instance, when seen in conjunction with earnings, it tells you about valuations. More on this later.

Note that you can't say that a stock is expensive or cheap just by looking at the stock price; for that, you need to look at the valuation. A stock priced at Rs 10,000 can actually be 'cheaper' than a stock priced Rs 10 when seen in terms of valuation.


2. Stock-price chart: A stock-price chart is plotted to see the progression of stock price over time. The 52-week range of stock price is frequently tracked. It tells you the highest and the lowest points the stock price has touched during a year.


3. Market capitalisation: Shortened as 'market cap' or 'mcap', it tells you how big a company is. Market cap is obtained by multiplying the stock price by its outstanding number of shares. Roughly, a company with a market cap of up to Rs 5,000 crore is a small cap; one with an mcap up to Rs 25,000 crore is a mid cap; and the companies over that are large caps.


4. Volume: The volume number indicates how many trades are executed in a particular stock in a particular period. Always invest in stocks with reasonably high volumes (in at least five digits) as it is easy to both enter and exit such stocks. Stay away from stocks that have anaemic volumes.


5. Earnings per share (EPS): EPS is calculated by dividing the total profit of a company by its total number of shares. EPS splits the entire profit of a company across its shares.


6. Price-to-earnings (P/E) ratio: As stated earlier, it's not the stock price but valuation that tells you how expensive a stock is. The P/E ratio is one of the most important valuation tools. It is calculated by dividing the stock price by 'TTM' earnings. TTM stands for trailing twelve months. Hence, TTM earnings are the earnings of the last twelve months or four quarters.

A low P/E means a cheap stock. A high P/E means an expensive stock. But wait! Before you overgeneralise this statement, be informed that not all low P/E companies are good companies. Nor are all high P/E companies bad choices. It's the financial strength and the future outlook of a company that drive valuations. You need to dig deeper in order to know if a company's P/E is justified or not.


7. Price-to-earnings-growth (PEG) ratio: A better tool than the P/E ratio is the PEG ratio. It is calculated by dividing the current P/E of the stock by its earnings growth rate of a specific period. Don't worry about the underlying calculations; you can find readymade PEG on the stock pages on the Value Research website. A PEG of less than one implies a cheap stock, that of more than one an expensive stock and a PEG of around one indicates a fairly priced stock.


8. Price-to-book (P/B) ratio: The P/B ratio is another valuation tool. It is obtained by dividing the stock price by book value. Book value of a share is its worth in the company's books. A P/B of under one indicates a cheap stock. But beware, you can't read too much into this metric as book value isn't a very reliable tool; the actual worth of share could be very different from what the company thinks it to be.


9. Dividend yield: Dividends are the profits that companies share with their shareholders. Dividend yield is obtained by dividing the dividend per share by the stock price. The higher the dividend yield, the more money you get as dividends.

Happy Investing

Power of compounding …. A Story retold

Power of compounding …. A Story retold

Investing early is as important as investing wisely. Compounding earnings can skyrocket small investments. We give you a lowdown of it here

Sachin Tendulkar started playing cricket at the age of 16. At 29, he has already amassed over 12,000 runs in one-day matches. On the other hand, Robin Singh joined the Indian team at the age of 25 and has retired now. He could manage only 2,336 runs in one-day matches. Before you begin to wonder if we have lost our marbles, let us tell you what we are trying to arrive at here. The idea is simple: the earlier you start investing, the more likely it is that you would end up making more money. While runs scored in cricket don't multiply automatically, investment does. Surprised? Well, the fundamental principle of compounding helps you realise this.

Let's see how the concept of compounding works. Suppose Sachin started investing Rs 2,000 per year at the age of 19 and when he reaches 27, he stops investing and locks all his investments till retirement. Robin, however, doesn't make any investment till he is 27. At 27, he starts investing Rs 2,000 a year till the age of 58. The adjacent table tells you how their investments would turn out when they both are 58, assuming that the growth rate is 8 per cent per annum. The results are eye-popping (see Compounding: A Tale of Two Investors).

What is compounding? Benjamin Franklin once wrote somewhere: '''tis the stone that will turn all your lead into gold Remember that money is of a prolific, generating nature. Money can beget money, and its offspring can beget more.'' Compounding is a simple, but a very powerful concept. Why powerful? Because compounding is similar to a multiplier effect since the interest that is earned by the initial capital also earns an interest, the value of the investment grows at a geometric (always increasing) rate rather than an arithmetic (straight-line) rate (see How Compounding Works). The higher the rate of return, the steeper the curve.

For example, at an annual interest rate of 8 per cent, a Rs 1,000-investment every year will grow to Rs 50,000 in 20 years. While at a 10 per cent rate of interest, the same investment will fetch you Rs 63,000 in 20 years. So, it is quite clear that a 2 per cent difference in the interest rate can make you richer or poorer by Rs 13,000. And, by staying invested for a longer period, your capital will earn more money for you.

Basically, compounding is a long-term investment strategy. For example, when you own a mutual fund, compounding allows you to earn interest on your principal. Compounding also occurs when you re-invest your earnings. In the case of mutual funds, this means re-investing your interest or dividend, and receiving additional units. By doing such a thing, you are earning a return on your returns and the principal. When the principal is combined with the re-invested income, your investment will grow at an increased rate.

The best way to take advantage of compounding is to start saving and investing wisely as early as possible. The earlier you start investing, the greater will be the power of compounding.




Happy Investing
Source: Valueresearchonline.com