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Today, let's chat about “The Power of Compounding”.
What it is, the key principles to stay patient, and, how you'll be massively rewarded.

This works especially well if you're young.
We'll go through a quick math example, where if you invest 20% of your paycheque at age 22, you'll get $2.21 M, for free, by the time you're 65, just for your time in the market.
Don’t believe me? Pull out $5 (that’s our bet, would love a sweet tip if I win at the end). And read on.
CHOOSE YOUR OWN ADVENTURE TIME
Have you heard of the “chessboard and the rice” story? If not, stroll to the bottom.
If you have, read on.
Start investing as early as possible, even if you invest $1 a day, JUST START! Compounding fairy needs time and patience to show you its magic.
Knowing this exponential law will help you to keep going. At the beginning, you might feel like nothing is happening. At moments like this, just pull up this chessboard. Know that this is part of the course. After a few years, you’ll start to see the magic.
Stay invested (don’t sell) no matter how bad the market gets. This is probably the hardest principle here. Human psychology. “Oh no, my money just went down 20%, and my friends are all pulling their money out, I need to pull mine out.” If we looks back the last 50 years, we’ve had X 20+% dips / pullbacks. And guess what, they’ve all pulled back faster than you can put on your shoelaces. If you had pulled your money out and didn’t put back in, sorry, compounding fairy is no longer with you. You have to start from day 1 again.
Keep dollar-cost-averaging (aka. You set it, you forget it, you earn it, you get it). “Timing the market” vs. “Time in the market”. Do these look similar? Because they are two drastically different ideas. “Time in the market” is what we’re talking about here. “Timing the market” refers to people who think they are smarter than everyone else, watch the news religiously, and try to buy in when prices are low. Truth is, they don’t. There are a ton of studies on this. [cite studies] Best way? Put in same amount every week or biweekly, whether it’s $10 or $50. There are apps now that support this auto-investing for you for free. For example, I live in Canada and use Wealthsimple. I can set $10 on a weekly basis to flow from my bank’s chequing account into the stock or ETF I wish to purchase in Wealthsimple. You set it, you forget it, you earn it, you get it. How’s that for a rap song?
Set up your own 80/20 rule. This is the Pareto principle, that refers to roughly 80% of successes come from 20% of efforts. It also applies here. If you put in 20% of your pay check every month into investing, it’ll eventually amount to 80% (or greater) of your wealth if you follow the previous 4 lessons. Combining this with principle #4, let’s use a simple example. Assume you make $4000 a month after tax. 20% of that is $800. You want to invest on a weekly basis into the 10 stocks you like. You will set up your investment app, so every week, $20 from your pay check gets auto-invested into each of the 10 stocks. $20 x 10 x 4 = $800. You set it, you forget it, you earn it, you get it…
Let's do a simple calculation.
Assume you read this after getting your first job, at age 22, and decided to give it a go. Assume market return of 7% a year. You decided to invest 20% of your paycheque, or $800 each month. You do this until you retire at 65. You’ve now invested for 43 years. How much do you have at 65?
$2,620,903.00
Total Contributions: $412,800.00
Total Interest: $2,208,103.76
Pretty wild, right? $2.21 million dollars, handed to you for free, just for your time and patience. ( did I win that $5 bet at the start?)
Don’t believe me? Click here to do your own calculation.
Once upon a time, there was an arrogant king. One day, he saw a princess from a nearby country, and wanted to impress her. He offered her the most extravagant diamond necklaces. She smiled and said, “I just have one wish. Fulfill it, and I shall be yours.”
She pulled out a chess board, 8 rows by 8 columns making up 64 squares. She put one grain of rice on the first square. The king was baffled, “That’s it?” The princess continued, “2 grains on the second square, 4 grains on the third, 8 grains on the fourth, and so on, so each square has double the amount of the previous one.”
The king laughed hard at this. “Are you sure you don’t want the 100 pound diamond necklace, and want this?” He immediately agreed, as this looks like a tiny prize.
The princess simply sat on a hammock, and waited.
1, 2, 4, 8, 16, 32, 64, 128… By the end of the fourth row, the king needed 2.1 billion grains of rice. He was now sweating, and asked his officials to estimate the total rice needed.
The answer? The number of grains required was far beyond the capacity of the chessboard, his palace, and his entire granary!
18,446,744,073,709,600,000.
But.. how did it get this big? This is called exponential growth, or the power of compounding. 2 to the power of 64.
Risk and reward are brothers from the same mom. You can’t have one without the other. This you already know.
Are you a risk-taker? Let’s do a quick assessment. On a monthly basis, how often do you:
Buy lottery?
Buy a stock or ETF with an unfamiliar ticker, just because you read it on some “five hottest AI (insert your favourite category here) stocks” website?
If your answer is bigger than 0, you take risks. Simple.
Research shows that 80% of American lottery buyers are among the bottom 10% of the population. They may not have $500 for emergency, but they have it for lottery. Why would they waste this survival money, knowing it’s 1 in a 1,000,000 chance? The answer lies in human psychology. When you’re desperate to be rich, and you have very little to start, what can you do? You have to take a ridiculous amount of risk to even have a shot.
Truth is, they never learned the power of compounding.
Now that you have met the Power of Compounding Fairy, and you’ve set $x dollar aside, what investments should you put your money in? How do you build your portfolio? That’s what we’ll cover next time.
Today, let's chat about “The Power of Compounding”.
What it is, the key principles to stay patient, and, how you'll be massively rewarded.

This works especially well if you're young.
We'll go through a quick math example, where if you invest 20% of your paycheque at age 22, you'll get $2.21 M, for free, by the time you're 65, just for your time in the market.
Don’t believe me? Pull out $5 (that’s our bet, would love a sweet tip if I win at the end). And read on.
CHOOSE YOUR OWN ADVENTURE TIME
Have you heard of the “chessboard and the rice” story? If not, stroll to the bottom.
If you have, read on.
Start investing as early as possible, even if you invest $1 a day, JUST START! Compounding fairy needs time and patience to show you its magic.
Knowing this exponential law will help you to keep going. At the beginning, you might feel like nothing is happening. At moments like this, just pull up this chessboard. Know that this is part of the course. After a few years, you’ll start to see the magic.
Stay invested (don’t sell) no matter how bad the market gets. This is probably the hardest principle here. Human psychology. “Oh no, my money just went down 20%, and my friends are all pulling their money out, I need to pull mine out.” If we looks back the last 50 years, we’ve had X 20+% dips / pullbacks. And guess what, they’ve all pulled back faster than you can put on your shoelaces. If you had pulled your money out and didn’t put back in, sorry, compounding fairy is no longer with you. You have to start from day 1 again.
Keep dollar-cost-averaging (aka. You set it, you forget it, you earn it, you get it). “Timing the market” vs. “Time in the market”. Do these look similar? Because they are two drastically different ideas. “Time in the market” is what we’re talking about here. “Timing the market” refers to people who think they are smarter than everyone else, watch the news religiously, and try to buy in when prices are low. Truth is, they don’t. There are a ton of studies on this. [cite studies] Best way? Put in same amount every week or biweekly, whether it’s $10 or $50. There are apps now that support this auto-investing for you for free. For example, I live in Canada and use Wealthsimple. I can set $10 on a weekly basis to flow from my bank’s chequing account into the stock or ETF I wish to purchase in Wealthsimple. You set it, you forget it, you earn it, you get it. How’s that for a rap song?
Set up your own 80/20 rule. This is the Pareto principle, that refers to roughly 80% of successes come from 20% of efforts. It also applies here. If you put in 20% of your pay check every month into investing, it’ll eventually amount to 80% (or greater) of your wealth if you follow the previous 4 lessons. Combining this with principle #4, let’s use a simple example. Assume you make $4000 a month after tax. 20% of that is $800. You want to invest on a weekly basis into the 10 stocks you like. You will set up your investment app, so every week, $20 from your pay check gets auto-invested into each of the 10 stocks. $20 x 10 x 4 = $800. You set it, you forget it, you earn it, you get it…
Let's do a simple calculation.
Assume you read this after getting your first job, at age 22, and decided to give it a go. Assume market return of 7% a year. You decided to invest 20% of your paycheque, or $800 each month. You do this until you retire at 65. You’ve now invested for 43 years. How much do you have at 65?
$2,620,903.00
Total Contributions: $412,800.00
Total Interest: $2,208,103.76
Pretty wild, right? $2.21 million dollars, handed to you for free, just for your time and patience. ( did I win that $5 bet at the start?)
Don’t believe me? Click here to do your own calculation.
Once upon a time, there was an arrogant king. One day, he saw a princess from a nearby country, and wanted to impress her. He offered her the most extravagant diamond necklaces. She smiled and said, “I just have one wish. Fulfill it, and I shall be yours.”
She pulled out a chess board, 8 rows by 8 columns making up 64 squares. She put one grain of rice on the first square. The king was baffled, “That’s it?” The princess continued, “2 grains on the second square, 4 grains on the third, 8 grains on the fourth, and so on, so each square has double the amount of the previous one.”
The king laughed hard at this. “Are you sure you don’t want the 100 pound diamond necklace, and want this?” He immediately agreed, as this looks like a tiny prize.
The princess simply sat on a hammock, and waited.
1, 2, 4, 8, 16, 32, 64, 128… By the end of the fourth row, the king needed 2.1 billion grains of rice. He was now sweating, and asked his officials to estimate the total rice needed.
The answer? The number of grains required was far beyond the capacity of the chessboard, his palace, and his entire granary!
18,446,744,073,709,600,000.
But.. how did it get this big? This is called exponential growth, or the power of compounding. 2 to the power of 64.
Risk and reward are brothers from the same mom. You can’t have one without the other. This you already know.
Are you a risk-taker? Let’s do a quick assessment. On a monthly basis, how often do you:
Buy lottery?
Buy a stock or ETF with an unfamiliar ticker, just because you read it on some “five hottest AI (insert your favourite category here) stocks” website?
If your answer is bigger than 0, you take risks. Simple.
Research shows that 80% of American lottery buyers are among the bottom 10% of the population. They may not have $500 for emergency, but they have it for lottery. Why would they waste this survival money, knowing it’s 1 in a 1,000,000 chance? The answer lies in human psychology. When you’re desperate to be rich, and you have very little to start, what can you do? You have to take a ridiculous amount of risk to even have a shot.
Truth is, they never learned the power of compounding.
Now that you have met the Power of Compounding Fairy, and you’ve set $x dollar aside, what investments should you put your money in? How do you build your portfolio? That’s what we’ll cover next time.
Maggi Xu
Maggi Xu
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