The Power of Compounding: Any long term investment which is highly profitable involves compounding. The power of compounding is immense.
Albert Einstein once said: “Compound Interest is the eighth wonder of the world He who understands it, earns it... He who doesn’t... pays it.”
Warren Buffett grew his empire on compounding. He understood it and that’s how he built his fortunes. He produced consistently great returns for a long period of time while spending very little. He made his money work for him.
His average returns over a period of 50 years is 21.6%. If you add his expenses and taxes, that return would fall just a bit. But, because Buffett is very frugal, he's kept that number high - about 20%.
Compounded, that is : 1.20^50 -1 = 909,940% return.
So, if Buffett started off with $10,000,000.00 in 1965, he would have $91B in 2015. However, if you add his donations and personal taxes, that number falls to his current net worth of $66.7B.Long term investments:
Real estate always remained a good option and what most Indians desire for the past decade but, they've saturated to an extent and one needs a lot of capital to invest and debts are never a viable option either.
Mutual funds and stocks are a better option to look at, compared to real estates for small capital investors, planning to invest on a long term basis. Stocks being a lot riskier but gives very high rate of returns, mutual funds being quiet a lot safer than stocks and giving back decent returns should be where a lot of one’s capital goes into, for having quite high returns on a moderately lesser risky portfolio than compared to holding a lot of stake on the stock market.
Having a well distributed and an all rounded portfolio, is always better even though it might reduce the returns received by a very small margin, but makes it all season proof, which would reduce one’s risks to a massive extent, which is very important on the long term where an investor needs to have a cool head during his decision making process.Equity Funds :
Equity-oriented hybrid funds invest a mix of equity (at least 65 per cent of the corpus) and debt. These schemes are less volatile than pure equity funds because of the mixed portfolio. The debt investments provide stability in times of volatility. These funds are suitable for new stock investors and very conservative equity investors.
Largecap funds invest mostly in big companies. Funds identify these companies by their market capitalisation. These companies are considered safe to invest because they are likely to be well-established players and leaders in their respective filed. This is the reason why largecap funds are considered suitable for conservative equity investors. These funds are likely to offer modest returns as they carry relatively less risk.