Investing has always been a subject surrounded by a significant amount of speculation, but one thing that every investor agrees on is the need to invest for a long-term period in order to earn returns.
Returns on an investment are generated through the interest you earn by investing in that instrument. You can choose to invest in low-risk instruments such as fixed deposits or government bonds, where the risks are low and your returns are guaranteed. You may perhaps opt to invest in equity shares or debts, where the risks are high as are the returns. Regardless of the instrument, you choose to invest in, the most important determinant of the amount of returns you earn is the time duration that you invest for.
The principle of compound interest is one that each of us learns in school, but often enough, it is easy to forget how very useful it can prove in life. Every time you are interested in making an investment but are unsure of how long you need to invest for the investment to turn profitable, use an online compound investment calculator. There are a range of calculators available online, including a compound interest half-yearly calculator through which you can figure the amount of interest you will earn if you make an investment for a half-yearly period.
You can also look for a compounded quarterly calculator, which lets you calculate the amount of interest you would earn in a quarterly fashion if you keep investing for over a period of time. Using this calculator, you can correctly estimate the amount of time required to draw sizable returns.
There are several reasons why investing for a longer time period is beneficial. Read on below to learn more.
No Scope for Panicked Decisions:
When you invest in the equity market or in any other instrument which is dictated by market forces, there is always a chance that the market movements will make you panic and make buy or sell decisions in an instant. Investment instruments, and especially those based on market movements, are affected by a range of factors, including social, economic, and political changes, both locally and globally. As a result, there is always a chance that a sudden drop in the market will have investors rushing to sell off their shares which can later rebound and bring a lot of profitability. However, when you make a long-term investment for which you have already defined the term, it will be impossible for you to make any knee-jerk reactions to the market movement. This is where using a compound interest calculator comes in useful, since it allows you to calculate the interests you are likely to make over a period of time and will act as a reassurance even when markets are failing. Even a compounded quarterly calculator allows you to understand the benefits you are likely to reap over a period of time.
Reinvestment of Profits:
A compound interest half-yearly calculator will enable you to assess the amount of money you are likely to make as returns over half a year. However, where this can prove useful is that you can then use the amount earned as interest to invest more. With a long-term investment, you can re-invest the returns and profits you make on the same instrument or a different instrument and earn additional returns, separate from your primary investment.
When you invest for a short period of time, you can end up paying a significant amount of money to agents as commissions for investing. Each time you make an investment, you would be involving an agent who will charge you a commission for each time you trade. However, with a long-term investment, there will hardly be an occasion wherein you are required to pay commissions to an agent. For the most part, you will only be required to pay a commission if you reinvest your returns or make a new investment. Aside from these occasions, there will hardly be a necessity for you to pay commissions after the first time you identify your investment instrument and pay the principal amount. The high interest you calculate through a compound investment calculator will also reflect the returns that you are able to generate owing to the lesser frequency of paying commissions.
With a long-term investment, the risks of making losses are lesser. Since the market and instruments dependent on it can move in any direction on any given day, there is always a chance that short-term investors would be tempted to pull out on a day when the market is dropping fast and returns look bleak. However, remaining invested in the market for a longer period of time lets you ride the wave of market movements and chances are that you will emerge with significantly higher returns than if you had been able to pull out after the first market drop.
Plan a Better Retirement:
From the time you begin earning, there will be well-meaning people who give you advice on what to do with your money. Planning for your retirement should start as early as possible, as it will give you an adequate amount of time to save up for your retirement years. By investing right from the start of your career, you can start building up a corpus that will help you live out your retirement years comfortably. With a compound investment calculator, you can accurately estimate the returns you will be reaping in years to come; which will help you plan even better for your retirement years. Beginning to plan your retirement as early as you can is necessary because when you are older and your responsibilities increase, you will be unable to set aside an adequate amount of funds. As a result, if you plan early and begin investing for retirement as early as possible, you will be able to generate a sizable fund by the end of the term.
Investing is a healthy habit and investing over the long-term helps you garner a range of benefits, as mentioned below. Make sure to try out the online compound interest calculator well in advance to understand the benefits you are likely to reap over the long term.