Let’s Play “Would You Rather” – The Power of Compounding

Would you rather have $1 Million in cash? Or a penny that doubles every day for 30 days?

The correct strategy might not be readily apparent. I tested my friends and family with this question and most of them chose to take the $1 Million. That’s not a bad choice. There are a lot of times when “a bird in the hand IS worth 2 in the bush”. If I were to tell you that on day 24 you would still have less than $84K, that bird in the hand, that $1 Million would look even better. Agreed? But sometimes, it makes more sense to go bush diving. Let’s see how much that penny would be worth on day 30.

Into The Bush!!!
Day 1: $.01
Day 2: $.02
Day 3: $.04
Day 4: $.08
Day 5: $.16
Day 6: $.32
Day 7: $.64
Day 8: $1.28
Day 9: $2.56
Day 10: $5.12
Day 11: $10.24
Day 12: $20.48
Day 13: $40.96
Day 14: $81.92
Day 15: $163.84
Day 16: $327.68
Day 17: $655.36
Day 18: $1,310.72
Day 19: $2,621.44
Day 20: $5,242.88
Day 21: $10,485.76
Day 22: $20,971.52
Day 23: $41,943.04
Day 24: $83,886.08
Day 25: $167,772.16
Day 26: $335,544.32
Day 27: $671,088.64
Day 28: $1,342,177.28
Day 29: $2,684,354.56
Day 30: $5,368,709.12!!!!
This is The Power of Compounding!
Compounding in it’s simplest terms is earning interest or returns on already earned interest or returns. As a result, your money earns more money on money it’s already earned. This effect becomes more and more powerful the longer you invest because that interest/gain has more time to earn more interest/gains. Remember, on day 24 of 30, in the above example, we still only had $84K. In the last few days is when we saw the most significant growth. This effect is the reason most Financial Advisors tell their clients to begin investing as soon as you can, as much as you can. Time really is of the essence here.

See For Yourself!

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