Every month we shall highlight one topic of investor interest. Though these are simple concepts, often they are ignored or mistaken. This month our subject revolves around the power of compounding.

Regardless of where you choose to put your money - cash, stocks, bonds, or a combination of these - the key to saving for the future is to make your money work for you. This is done through the power of compounding.

Compounding investment earnings is what can make even small investments become larger, given enough time. You are probably already familiar with the principle of compounding. The money you put into a bank account earns an interest. Then, you earn interest on the money you originally put in, plus on the interest you have accumulated. As the size of your account grows, you earn interest on a bigger and bigger pool of money.

The following table shows how much your money would grow when you invest a fixed amount per month over a period of 10, 15, 20, 25, and 30 years, assuming an interest rate of 10% p.a.

How power of compounding makes your money grow, when you invest a fixed amount every month

Here's how much your money would grow if you make an lump sum (one-time) investment and leave it untouched. The interest rate has been assumed to be 10%.