Power of Compounding – The Tunneling Effect
Understanding the ‘Power of Compounding‘ is the surest and safest way to riches. If it is so simple then why do people fail to apply its awful power.
When you first start out investing using compound interest, all the hard work takes place upfront, in the beginning. You have nothing to show for your effort.
This is called the ‘Tunneling Effect’; it causes a lot of dismay and most people give up at this point because they do not see any tangible results for their sacrifice, hard work and effort.
If there is a confluence of patience and perseverance at this stage, then there is not only light at the end of the tunnel—there’s an illuminating Sun shining in all its glory for you to bask in. Anyone who has become wealthy has passed through this dark tunnel. There is no escaping it.
“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men of talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.” – Calvin Coolidge
Warren Buffet, one of the richest men in the world, remarked about his wife when he was building his wealth “Susie didn’t get very excited when I told her we were going to get rich. She either didn’t care or didn’t believe me – probably both, in fact.” You can read the biography of any wealth creator, and you will find in it the universal truth of the ‘tunneling effect’ and how they wanted to quit but didn’t.
Power of Compounding – Critical Mass
If you persist and as the time goes on the critical mass kicks in and things begin to get better. Your investment becomes self-perpetuating; it starts growing under its own steam. The challenge at this stage is to not change course
The problem with the human mind is that it loses its focus rather easily; it diverts its attention to other thoughts and ideas. It will eventually start looking at other options. The key here is to maintain focus. Compounding is boring— B-O-R-I-N-G. It is boring until the money starts to pour in; compounding becomes very interesting hereon. In fact, it becomes downright fascinating! Compounding, if allowed to continue, catalyzes the expansion of your wealth to unfathomable levels.
The principle of compounding is also applicable to other forms of investment like: real estate investments and network marketing. Ninety percent of people drop out of network marketing because they do not fully appreciate the power of compounding. They feel discouraged once they face, and have to endure that tunneling effect, and quit. They fail to see thelight that is just around the corner; dogged persistence is a great quality to have if you want to succeed.
Compounding Only Works In Time
The great thing about compounding is that anyone can do it. Compounding is the royal road to riches. Compounding is the safe road and the sure road. To compound successfully you need the following: perseverance in order to keep you firm on the savings path, and you need time—time to allow the power of compounding to work for you. Time, in fact, is the most powerful element in the process of compounding; nothing comes close to it.
There is a paragraph in ‘The Richest Man in Babylon, The Power of Time’ that explains this perfectly:
“Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed, the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade” (George S. Clason, 1926).