Would you relatively have a penny that doubles every day for a month or 1 million {dollars}? I noticed this query the opposite day, and it jogged my memory of considered one of my favourite tales from highschool math (sure, that is fairly nerdy, however it is a private finance weblog).
So, earlier than I inform the story, give it some thought:
If a genie appeared and gave you a alternative, what you’ll select: would you relatively have a penny right now, that doubled on a regular basis for a month, or $1 million right now?
The actual fact is, lots of people get caught up within the preliminary quantities: $1,000,000.00 versus $0.01.
However let’s share the story of the The Grain of Rice, a mathematical fable from India.
The Grain Of Rice Fable
Way back in India, there lived a raja who believed he was clever and honest, as a raja ought to be. The individuals in his province have been rice farmers. The raja decreed that everybody should give practically all of their rice to him. “I will store the rice safely,” the raja promised the individuals, “so that in time of famine, everyone will have rice to eat, and no one will go hungry.” Annually, the raja’s rice collectors gathered practically the entire individuals’s rice and carried it away to the royal storehouses.
For a few years, the rice grew properly. The individuals gave practically all of their rice to the raja, and the storehouses have been at all times full. However the individuals have been left with solely sufficient rice to get by. Then one yr the rice grew badly and there was famine and starvation. The individuals had no rice to offer to the raja, and so they had no rice to eat. The raja’s ministers implored him, “Your highness, let us open the royal storehouses and give the rice to the people, as you promised.” “No!” cried the raja. How do I understand how lengthy the famine will final? I should have the rice for myself. Promis or no promise, a raja should not go hungry!”
Time went on, and the people grew more and more hungry. But the raja would not give out the rice. One day, the raja ordered a feast for himself and his court–as, it seemed to him, a raja should now and then, even when there is famine. A servant led an elephant from a royal storehouse to the palace, carrying two full baskets of rice. A village girl named Rani saw that a trickle of rice was falling from one of the baskets. Quickly she jumped up and walked along beside the elephant, catching the falling rice in her skirt. She was clever, and she began to make a plan.
At the palace, a guard cried, “Halt, thief! The place are you going with that rice?”
“I’m not a thief,” Rani replied. “This rice fell from one of many baskets, and I’m returning it now to the raja.”
When the raja heard about Rani’s good deed, he asked his ministers to bring her before him.
“I want to reward you for returning what belongs to me,” the raja said to Rani. “Ask me for something, and also you shall have it.”
“Your highness,” said Rani, “I don’t deserve any reward in any respect. However if you want, you could give me one grain of rice.”
“Just one grain of rice?” exclaimed the raja. “Certainly you’ll enable me to reward you extra plentifully, as a raja ought to.”
“Very properly,” said Rani. “If it happy Your Highness, you could reward me on this means. At this time, you’ll give me a single grain of rice. Then, every day for thirty days you’ll give me double the rice you gave me the day earlier than. Thus, tomorrow you’ll give me two grains of rice, the following day 4 grains of rice, and so forth for thirty day.”
“This appears to be a modest reward,” said the raja. “However you shall have it.”
And Rani was presented with a single grain of rice.
The next day, Rani was presented with 2 grains of rice.
And the following day, Rani was presented with 4 grains of rice.
On the ninth day, Rani was presented with 256 grains of rice. She had received in all five hundred and eleven grains of rice, enough for only a small handful. “This woman is trustworthy, however not very intelligent,” thought the raja. “She would have gained extra rice by retaining what fell into her skirt!”
On the twelfth day, Rani received 2048 grains of rice, about four handfuls.
On the thirteenth day, she received 4096 grains of rice, enough to fill a bowl.
On the sixteenth day, Rani was presented with a bag containing 32,768 grains of rice. All together she had enough rice for two bags. “This doubling up provides as much as extra rice than I anticipated” thought the raja. “However certainly her reward will not quantity to rather more.”
On the twenty-first day, she received 1,048,576 grains of rice, enough to fill a basket.
On the twenty-fourth day, Rani was presented with 8,388,608 grains of rice–enough to fill eight baskets, which were carried to her by eight royal deer.
On the twenty-seventh day, thirty-two brahma bulls were needed to deliver sixty-four baskets of rice. The raja was deeply troubled. “One grain of rice has grown very nice certainly,” he thought. “However I shall fulfill the reward to the top, as a raja ought to.”
On the twenty-ninth day, Rani was presented with the contents of two royal storehouses.
On the thirtieth and final day, two hundred and fifty-six elephants crossed the province, carrying the contents of the last four royal storehouses- 536,870,912 grains of rice.
All together, Rani had received more than one billion grains of rice. The raja had no more rice to give. “And what’s going to you do with this rice,” said the raja with a sigh, “now that I’ve none?”
“I shall give it to all of the hungry individuals,” said Rani, “and I shall go away a basket of rice for you, too, should you promise any more to take solely as a lot rice as you want.”
“I promise,” said the raja. And for the rest of his days, the raja was truly wise and fair, as a raja should be.
The Power Of Compound Interest
Now that you’ve read the fable, you can see the choice is pretty clear: it’s better to have a single penny that doubles everyday for a month, versus $1 million up front. This is because of the power of compound interest.
If you took a single penny and doubled it everyday, by day 30, you would have $5,368,709.12.
However, it’s important to note that it’s all about the power of doubling – if you asked the same question, but changed the doubling time to just 27 days, you would only have $671,088.64.
Key Takeaway For Investing
The key takeaway from all of this should be: start investing early and often. The biggest gains and returns always happen later in life. If you start investing in your portfolio today and earn a modest 6% return, that might not seem like a lot of money today.
But in 30 years? Earning a 6% return throughout your life, you’ll start seeing huge returns later in life as you approach retirement.
Remember, investing is a long term endeavor – you shouldn’t be looking to double your money in 3-5 years. You should be looking to grow your money over time. Remember, the Rule of 72 will guide in you in how long it will take to double.
What do you consider the Fable of the Grain of Rice?
