Investing Advice

Compounding Interest The Magic and Power

Imagine a job offer for work lasting exactly 31 days. You are given the choice of a flat payment of $474,836.47, or a daily wage starting with 1 penny on the first day, and then doubling each day. This would be 2 cents the second day, 4 cents for the third day, and so on through 31 days.

Which would you choose? If you were to take the $474,000, you have just thrown away an incredible $21,000,000 - that's 21 million dollars!

Here is the proof:

Day   Pay for day Day Pay for day  
1 .01 17 655.36  
2 .02 18 1,310.72  
3 .04 19 2,621.44  
4  .08 20 5,242.88  
5 .16 21 10,485.76  
6 .32 22 20,971.52  
7 .64 23 41,943.04  
8 1.28 24 83,886.08  
9 2.56 25 167,772.16  
10 5.12 26 335,544.32  
11 10.24 27 671,088.64  
12 20.48 28 1,342,177.28  
13 40.96 29 2,684,354.56  
14 81.92 30 5,368,709.12  
15 163.84 31 10,737,418.24  
16 327.68   $21,474,836.47  total

The reason this works is because within a few days you are no longer doubling pennies, but dollars, then doubling thousands of dollars. Every day you are doubling a bigger and bigger number (doubling your money is called making 100%).

How much you earn because of compounding depends on the percent you make and the amount of time the money grows. Of the two (percent and time), time is the more powerful.

If you bought stock in a company at $20 per share and it went up in value starting at only 28 cents a week (1.4% per week), with compounding you would be making 100% on your investment each year and the stock price each year would be doubling. Then in 31 years, every penny that you had invested in this stock would turn into $10,737,418. Every dollar invested would turn into $1,073,741,824. Yes, really!

Other "Why Invest Money?" Topics:

  1. Investing Introduction for Adults
  2. Special Investing Introduction for Children & Young Adults
  3. Introduction to the Investing Concept of the Golden Piggy Bank
  4. Compounding Interest - The Magic and Power
  5. Basic Investing Words You Need to Know

Did you find the information you were looking for?
After reading the above article, what is still your biggest question?

Get Weekly Investing Advice
Receive free practical investment advice and tips delivered weekly to your email box with contributions from financial planners, investors, and financing and loan professionals.
  I want to ask a question and receive investment tips.
  I only want to ask a question and don't want helpful advice.
E-Mail Address:  
Your Name:  

To find more investing and stock related websites input the phrase "investing advice" directly into the search box below or simply type in your own search phrase to see over 1 million other investing, stocks and online trading websites.
Who's Not Investing?

Millions marry and start families each year without taking basic steps to make sure their future, as well as their children's, is financially secure.

According to a recent survey by Princeton University and the Consumer Federation of America, 70% of households with incomes under $50,000 a year have retirement savings of less than $5,000. This same report said "most Americans are living paycheck to paycheck".

Learn more about how you can plan, save and invest smart for your family's future.

 Investing Money Sections
arrow Why Invest Money?
arrow Investment Basics
arrow Saving Money
arrow Stock Market History
arrow Stock Market Basics
arrow Stock Market Indexes
arrow Stock Market Investing
arrow Mutual Funds
arrow Investing Advice
arrow Retirement Planning
arrow Saving for College
arrow Financial Planners
arrow Investment Opportunities
arrow Financial Charts
arrow Investment Terms


Return Home

 Home | Contact Us | Privacy | Site Map | Legal notices
 Copyright A to Z Investments 2005. All rights reserved.