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How Does Compounding Help You Make More Money?

money compounding - smartcrowd

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When people think of the phrase “make your money work for you”, they think it’s as simple as making a couple of investments and spend the returns on whatever they want. That’s fair. At the end of the day, your investments are meant for your consumption – whether it’s to spend or save. 

However, you wouldn’t be taking full advantage of your returns. When it comes to real estate investments or any form of investment, the secret to exponentially growing your wealth is compounding your investments. What is compounding? It’s the process of re-investing an asset’s returns to generate additional earnings over time. It’s exponential because the investment will generate earnings from both its initial amount and the accumulated earnings from the preceding time periods. 

Let’s say, for example, two friends in their late 20s – Simon and Pooja – decide they’re going to start investing their savings in real estate investment opportunities for 30 years. Both earn an identical salary of $50,000 annually. They said they would save $1,000 per month and invest all of it every month into a real estate investment platform, earning 8% annually. However, only Pooja understood the power of compounding. 

Simon, who is risk-averse, backed out and puts all his money into his savings account earning 1% annually. Over the 30 years, this adds up to around $420,000 ($360,000 from his own contributions and $60,000 from his savings account). 

Pooja stuck to her strategy of re-investing her earnings via compounding and didn’t spend any of it. By the end of the 30 years, she had earned $1,510,000 – with $360,000 coming from her own contributions and $1,150,000 from the returns earned from her investments. 

Two people. Identical situations. Simon was too scared to harness his financial potential, while Pooja took advantage of it. Pooja didn’t do anything revolutionary, yet she is almost 4 times richer than Simon! 

money compounding - smartcrowd
Prospective Growth Trend with Compounding

Compounding your investments can result in exponential returns on your portfolio, while not doing so can result in linear returns. Why work harder when you can work smarter?

Power of Compounding

Essentially, Compounding is like the snowball effect. As a snowball rolls down a hill, it becomes larger and larger as it accumulates more snow. As you re-invest your earnings, they start to accumulate and multiply your returns. 

That original amount of $1,000 ended up making Pooja a millionaire by the time she retired! That’s the power of compounding.

At SmartCrowd, we provide our clients the opportunity to compound their investments. As a real estate investment platform, we enable our clients to invest in real estate without having millions of dollars worth of capital. Previously, you would have to invest millions just to purchase a single property. Through SmartCrowd, you can invest as low as AED 500 into multiple properties! 

Investors can invest as low as AED 500 every month if they wish and re-invest their earnings into a diversified portfolio of properties. Not only would you be compounding your returns, but you’d also be reducing your risk as you won’t be restricted to a single property. Compound your investments today with!

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