How Power of Compounding works?
An inspirational story.
Long back, when the inventor of the chess showed the game to an Indian king, the king was so impressed by the new game, that he wanted to reward the inventor. At that time, the inventor replied, “My wishes are simple. I only wish for one grain of rice for the first square of the chessboard, two grains for the second square, four grains for the third square, eight for the fourth square and so on for all 64 squares.”
The inventor said, “Please double the number of grains in the next square compared to the earlier square.”
The king was amazed to hear that the inventor had asked for such a small reward. He happily agreed to the inventor’s request. However after a week, the king’s treasurer informed him that the reward would add up to a huge number—far greater than all the rice that could possibly be produced in many centuries!
Do you know how much rice it would be when one reaches 64th square of the chessboard?
As said earlier, in the first square of the chessboard there is only one grain. But when you come to the 64th square, it is 18 million trillion grains of rice. This is more than enough to cover the entire surface of the earth.
All of us behave like the king in some ways or the other. We find it hard to understand how the ‘power of doubling or compounding’ makes numbers grow.
Moral of the story :
Start investing early.
Don’t touch the amount for a long time.
Don’t keep jumping from one investment to another.