Compounding

No other basic formula in the world of mathematics may have done so many wonders to so many people in this world! It's simple!! It's the power of compounding!! Before I go into that just read this small story about the smart farmer who asked the Shahenshah for just a few grains of rice.

Said he "Shahenshah, on this Chess Board, just give me just one grain of rice in the first of the 64 squares. The every next square, give me twice the number of grains, which are there in the previous square. That is, give me 2 grains in the 2nd square, 4 in the 3rd square, 8 in the 4th square and keep doubling it with every next square like 16, 32, 64, 128, 256, 512, 1024, 2048, 4096 etc."

Shahenshah thought this was very foolish to ask of him, and ordered that the farmer's wish be complied.

Do you know the outcome of the order? The farmer had effectively asked for more than the entire quantity of rice that the kingdom ever stored in the godowns!!

This is simply because doubling 1 every time for 64 times and adding all of them becomes a number which is approximately 368935 followed by fourteen zeros.

Unfortunately not all people realise the farmer's smartness. Forget doubling the numbers - which means your investment doubles every year - a one hundred percent return - let's take the one thousand Rupees that your parents or grandparents gifted you when you were born and your were smart enough to immediately invest it in a 12% p.a. instrument with a monthly compounding. When you retire at 60, the same modest one thousand Rupees would become around Rupees 1292376, yes - hold your breath - Rs. 1.29 million!. I wish your parents had gifted ten thousand Rupees!

I wish to use this space to create an awareness about this simple 'power of compounding'

Await my next article!!