Compounding: An easy way to build wealth without lifting a finger (if you're patient!)

702 and CapeTalk's Stephen Grootes speaks to Head of Research at Mazi Asset Management Natasha Senkge, and Head of Equity Research at FNB Wealth and Investments Chantal Marx.

Listen below:

They say that time is a healer. Well, in the financial world, it's also a grower - if you're patient.

Compounding is a smart way to make money, provided you are prepared to let your investment 'do its thing.'

Sengke explains how it works...

"You put in an investment, you earn interest, you reinvest that interest and it earns an interest on top of that."

- Natasha Senkge, Head of Research - Mazi Asset Management

RELATED: 5 tips to compound your way to financial freedom

Over time, there is an accumulative effective where the interest starts to earn interest, over and above the initial capital investment.

"That creates a snowball effect where you have these growing accumulating returns that grow faster... that's the power of compounding."

- Natasha Senkge, Head of Research - Mazi Asset Management

Sengke says the most important thing to think about with compounding is time (and patience).

"You will feel the volatility, there will be moments where you feel like you're losing your entire portfolio, but if you stay invested that will smooth out."

- Natasha Senkge, Head of Research - Mazi Asset Management

The biggest mistake people make, she says, is to panic and start withdrawing their investment.

"That's where you break the cycle of that compounding effect... and you've reduced your potential return."

- Natasha Senkge, Head of Research - Mazi Asset Management

RELATED: Should you pay off your bond before retirement? Here's what to consider

Chantal Marx, Head of Equity Research at FNB Wealth and Investments, says compounding is most important when the markets are on a downturn.

"That is usually when investor psychology flips out a little bit, and people start withdrawing funds."

- Chantal Marx, Head of Equity Research - FNB Wealth and Investments

But she says it's also important during times, such as now, where we are experiencing considerable geo-political volatility.

"The market's going up, but there's chaos everywhere... should I be withdrawing or taking some profit off the table?"

- Chantal Marx, Head of Equity Research - FNB Wealth and Investments

But Sengke reminds those considering compouding that smart investing is crucial...

"You do need to invest, for example, in equities - in the right companies, companies that fundamentally do show growth potential over time."

- Natasha Senkge, Head of Research - Mazi Asset Management

Want to know more about compounding? Scroll up to the audio player above to listen to the full conversation from The Money Show.