Importance of Compounding

[Kane]

Primary purpose of investing is to earn return on your investment. When you receive returns, you can either spent it or reinvest it. When you are reinvesting, you are compounding. Compounding means your money earns money, and that money earns more money, so your wealth multiplies. You can grow your wealth through compounding, If you withdraw your profits and spend it, your investment does not grow.

 

[Riberet19]

Compounding is important but as long as you are in the right asset, for example many people do compunding in ETFs or index funds, that is a good way to do it as long as you have chosen your ETF meticulously, you also have to know when to withdraw your money.

 

[Kane]

Yes, the most important thing to remember is when to withdraw. If you don't know when to sell your assets and withdraw your portfolio, you might end up losing money. The best strategy is withdrawing your seed money and then reinvesting your profits.