As the phrase goes, it’s the early bird that catches the worm, the same can be applied to the investment strategy of compounding.
To take advantage of the power of compounding and to help achieve your long-term investment goals at a lower cost, it pays to start early as well as to invest consistently through different market conditions.
The compounding effect
The power of compounding can have a significant impact on an investor’s returns. For example, if we are just looking at the price returns, an initial US$100 invested into the MSCI World Index1 in 1970 would have given an investor more than US$1,700 today2.
The compounding effect could also significantly increase these returns if the investor reinvest the dividends paid out over time. So keeping to the MSCI World Index1, the same US$100 invested in 1970, and reinvesting the dividends received, would have grown this US$100 to over US$7,600 today2.
This isn’t such a bad way to turbo-charge your long-term investment performance, no?
All in all, staying invested and re-investing dividends regularly over the long term, especially amid changing market conditions, could help build a more resilient portfolio. Start saving and investing early to optimise the benefits of compounding.