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Tale of 2 Investors- Power of Compounding

Compounding investment earnings can turn your small investments into a whopping sum after a period of time. The best way to take advantage of compounding is to start saving and investing wisely as early as possible. Let's see how the concept of compounding works. Suppose Khalid started investing RO 5,000 per year at the age of 21 and when he reaches 29, he stops investing and locks all his investments till retirement. Yusuf, however, doesn't make any investment till he is 29. At 30, he starts investing Rs 5,000 a year till the age of 50. The adjacent table tells you how their investments would turn out when they both are 50, assuming that the growth rate is 8% per annum. The results are eye-popping (see the Table: Compounding: A Tale of Two Investors).
 
Assumed rate of return 8%
    KHALID   YUSUF
Age   Annual Inv.

(Omani Rials)
Year End Value (Omani Rials)   Annual Inv.
(Omani Rials)
Year End Value
(Omani Rials)
21   5000 5,400   0 -
22   5000 11,232   0 -
23   5000 17,531   0 -
24   5000 24,333   0 -
25   5000 31,680   0 -
26   5000 39,614   0 -
27   5000 48,183   0 -
28   5000 57,438   0 -
29   5000 67,433   0 -
30   0 72,827   5000 5,400
31   0 78,654   5000 11,232
32   0 84,946   5000 17,531
33   0 91,742   5000 24,333
34   0 99,081   5000 31,680
35   0 107,007   5000 39,614
36   0 115,568   5000 48,183
37   0 124,813   5000 57,438
38   0 134,799   5000 67,433
39   0 145,582   5000 78,227
40   0 157,229   5000 89,886
41   0 169,807   5000 102,476
42   0 183,392   5000 116,075
43   0 198,063   5000 130,761
44   0 213,908   5000 146,621
45   0 231,021   5000 163,751
46   0 249,503   5000 182,251
47   0 269,463   5000 202,231
48   0 291,020   5000 223,810
49   0 314,301   5000 247,115
50   0 339,446   5000 272,284
             
Total Investment   45,000     105,000  
Growth of Investment 7.5 times     2.6 Times
 
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