Let us expand the concept of compounding and the rule of 72 further:

If we Study the rule closely, we see that it has only three variables, i.e.,

1. Time period in years

2. Interest rate or the rate of return on the investment and

3. The Principal sum invested.

We have already discussed the investment options available w.r.t  interest rate or rate of investment.

Now let us see how we can exploit time period to our advantage for the purpose of wealth accumulation.

Let us first fix the interest rate or rate of return from any selected investment option at 26% and see what happens to our one time investment of Rs.1000/- if invested for a period of say 10, 20, 30 and 40 years. Then,

Value of Rs 1000/- , after 10 years will be Rs.10, 000/-

Value of Rs 1000/- , after 20 years will be Rs.1, 02,000/-

Value of Rs 1000/- , after 30 years will be Rs.10, 26,000/-

Value of Rs 1000/- , after 40 years will be Rs.1, 03, 47,000/-

Money multiplies exponentially as the time period increases.

Therefore,

Moral of the story is:

1. The longer the time period the better:

Compounding rewards disciplined investing and works best over longer tenures. In the above example, the first 30 years yield just Rs 10, 25,000/- lakh. The next 10 years show the real money multiplier effect of the power of compounding by yielding an additional massive sum of  Rs 93,21,000. 

Therefore, the longer you leave your money untouched, the faster and bigger it grows.

2. The earlier, the better: The earlier you begin investing, the better.

For instance, if you begin an investment plan at age 20 and invest Rs1,000/- @ 26% p.a.until you’re 60, you’ll get Rs 1.03.47/- Cr on a total investment of Rs 1,000/-.

On the other hand, your colleague who begins saving at age 30 and invests Rs 1,000/-will only get Rs 10.26 lakh on a total investment of Rs 1000/-.

That is, by allowing your money to compound longer, you are richer than your colleague by Rs 93.21 lakh, although both of you saved the same amount of Rs 1000/-.

Thus, time is one big factor in accumulating the wealth and which is controllable and in the hands of every investor. Therefore, One should start investing from the day one when he starts earning his or her first salary cheque. Make a plan and put aside a part of your earnings for regular investments. The biggest mistake in our life is that, we keep saying that we have lot of time to save, let us enjoy now. TIME FLIES AND SUDDENLY WE FIND OURSELVES STRANDED IN THE MIDDLE OF THE ROAD HIGH AND DRY.

This concept may look very simple and novice but it is extremely difficult to practice since it requires lot of patience, perseverance and discipline and inveriably one tends to fall back to shortcuts.