Anyone who has a car or housing loan will know the huge effects of compound interests applied by banks or finance companies. A big portion of the monthly repayment amount will be used to pay off the interests rather than the principle amount. Eventually, the amount payable in total is so much higher than the initial price
If we were to use this strategy in our investments, the effects on compounding can greatly benefit us.
Here is an example: In 15 years time, starting with an initial sum of S$100K plus compounding gain of 10% per annum (which im targeting), I will have a portfolio of S$417K.
Of course, in this example, there are some assumptions which i have to take.
I did not take into account the fact that i will inject more funds throughout the 15 years and by using a smaller or bigger initial sum, it will change the magnitude of compounding effects.
| Initial investment Amount | $100,000 |
| Year 2011 | $110,000 |
| Year 2012 | $121,000 |
| Year 2013 | $133,100 |
| Year 2014 | $146,410 |
| Year 2015 | $161,051 |
| Year 2016 | $177,156 |
| Year 2017 | $194,872 |
| Year 2018 | $214,359 |
| Year 2019 | $235,795 |
| Year 2020 | $259,374 |
| Year 2021 | $285,312 |
| Year 2022 | $313,843 |
| Year 2023 | $345,227 |
| Year 2024 | $379,750 |
| Year 2025 | $417,725 |
So.... Who wants to be a millionaire?
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