Best Compounding Assets to Start Investing
In investing compounding is one of the best factor which gives best effect in wealth grow exponentially. Compounding also works in long term investment. Wealth building is not quick wins, we need to give time for compounding money so that money can work for you over time. Below are some of those ways with you can build wealth over time with help of compounding as friend in investing.
- Stock Market
- Mutual Funds
- High Yield Savings Accounts
- Real Estate
- Dividend Paying Stocks
- Bonds
- Index Funds
- ETFs
- Retirement Accounts (NPS, PPF and EPF)
1. Stock Market
Stock market can generate wealth with price appreciation and dividends in stocks. You need to select high quality stocks with high growth and great potential in company growth.
Focus on fundamentally strong stocks with high potential growth and compounding stock value over time. Blue chip and monopoly stocks can be the highest stable growth stocks for generating long term wealth.
2. Mutual Funds
If you want to play safe than individual stocks, you can choose mutual funds. Mutual funds also have multiple types according to different sectors, size of company and investing style.
- Equity, Debt, Hybrid, Money Market funds and Growth Mutual Funds
- Large Cap, Mid Cap, Small Cap and Micro Cap
- Multicap, Multi Asset, Balanced Funds and Fund of Funds
- Sectors Funds : Eg. IT, Banking
- ELSS Funds and Liquid Funds
Mutual funds pool money from multiple investors to buy a diversified portfolio of stocks, bonds, or other assets. The reinvestment of dividends and capital gains within the fund allows your money to grow exponentially over time.
3. Exchange-Traded Funds (ETFs)
ETFs work similarly to mutual funds but trade like stocks. Many ETFs automatically reinvest dividends, allowing for compounding. Index ETFs, like those tracking the Nifty 50 or S&P 500, are popular choices for steady, long-term growth.
4. Real Estate Investment Trusts (REITs)
REITs invest in income-producing properties and distribute profits to shareholders. By reinvesting dividends, you can benefit from the growth of real estate assets without the hassle of directly owning property.
5. Bonds and Bond Funds
While more conservative, bonds pay interest regularly. Reinvesting this interest — especially through bond funds — leads to compounding returns. Consider corporate bonds or government bonds depending on your risk tolerance.
6. Dividend Stocks
Certain companies pay consistent dividends, which can be reinvested to buy more shares. Over time, this cycle multiplies your investment. Look for companies with a solid history of increasing dividends (called Dividend Aristocrats).
7. Index Funds
Index funds track a market index and often automatically reinvest dividends and gains. They’re a low-cost way to diversify and benefit from compounding over decades.
8. Retirement Accounts (PPF, NPS, Roth IRA)
Tax-advantaged retirement accounts like PPF (Public Provident Fund), NPS (National Pension System), and Roth IRAs allow investments to grow tax-free or tax-deferred, accelerating the compounding effect. Max out your contributions yearly to take full advantage.