Re investing is the key to financial success. Most of the time people invest and when the goal is achieved or the returns are generated, the extra amount is used or consumed.
Consumption of the returns on investment is good. That is the very purpose of investing.
But research shows that when the returns generated are re-invested or ploughed in the same business, the magic of the power of compounding is experienced.
The Ambani Brothers illustrate this beautifully. One who continuously keeps re-investing into his existing business or on new business, has grown a hundred fold in the last few years. On the other hand, the other has somehow not been able to re-invest. He also is not able to retain his experienced existing manpower.
The worst thing which one can do to his business is not re-investing and not taking care of his existing employees.
In order to achieve financial success re-investing is the key. In the long run re-investment works wonders and generate the ripple effect. The returns can be mind blowing.
Example: Fund A: Dividend payout option vs. Fund B: Dividend Re-investment option Its not about dividend but its about investment. If the dividend is used for the consumption then it’s a reason to take it. If the dividend it taken to book profit then also its fine. But if it is taken out without any reason , then its like spending . this can never grow. In mutual fund if one opts for dividend pay out option one must see how it is reinvested in other asset class. If not then it need to be invested. Long term compounding will only work and be visible only when it is re invested.
I have seen many tea garden owners in Bengal and Assam , they have made lot of money but rarely invest . This become the reason of failure . Many financial advisors also don’t invest in themselves and stop learning. This also is a major reason for the u turn in the life of the financial advisor Learning and reinvesting is a continuous processes .