Finance

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From: Mike .


The miracle of compounding
From: Scott
Date: 7/22/00
Time: 2:22:35 AM

I have just been reading a book recommended by Les in one of his earlier posts. Anyway I thought that this demonstration of the power of compounding was brilliant. It really reinforced to me the need to make the most of compounding. I thought I would share it with you.

If you had to choose between being paid $1000 per day for 24 days or doubling your money every day, starting at one cent for 24 days, which you you choose?

<table border="0" cellspacing="3" width="60%">
<tr>
<td>Day</td>
<td>OFFER 1 </td>
<td>OFFER 2</td>
</tr>
<tr>
<td>1</td>
<td>$1000</td>
<td>$0.01 </td>
</tr>
<tr>
<td>2</td>
<td>$1000</td>
<td>$0.02 </td>
</tr>
<tr>
<td>3</td>
<td>$1000</td>
<td>$0.04 </td>
</tr>
<tr>
<td>4</td>
<td>$1000</td>
<td>$0.08 </td>
</tr>
<tr>
<td>5</td>
<td>$1000</td>
<td>$0.16 </td>
</tr>
<tr>
<td>6</td>
<td>$1000</td>
<td>$0.32 </td>
</tr>
<tr>
<td>7</td>
<td>$1000</td>
<td>$0.64 </td>
</tr>
<tr>
<td>8</td>
<td>$1000</td>
<td>$1.28 </td>
</tr>
<tr>
<td>TOTAL</td>
<td>$8000</td>
<td>$2.55</td>
<td>after 8 days</td>
</tr>
<tr>
<td>9</td>
<td>$1000</td>
<td>$2.56 </td>
</tr>
<tr>
<td>10</td>
<td>$1000</td>
<td>$5.12</td>
</tr>
<tr>
<td>11</td>
<td>$1000</td>
<td>$10.24</td>
</tr>
<tr>
<td>12</td>
<td>$1000</td>
<td>$20.48</td>
</tr>
<tr>
<td>13</td>
<td>$1000</td>
<td>$40.96 </td>
</tr>
<tr>
<td>14</td>
<td>$1000</td>
<td>$81.92 </td>
</tr>
<tr>
<td>15</td>
<td>$1000</td>
<td>$163.84</td>
</tr>
<tr>
<td>16</td>
<td>$1000</td>
<td>$327.68 </td>
</tr>
<tr>
<td>TOTAL</td>
<td>$16000</td>
<td>$655.35</td>
<td>after 16 days</td>
</tr>
<tr>
<td>17</td>
<td>$1000</td>
<td>$655.36</td>
</tr>
<tr>
<td>18</td>
<td>$1000</td>
<td>$1310.72</td>
</tr>
<tr>
<td>19</td>
<td>$1000</td>
<td>$2621.44</td>
</tr>
<tr>
<td>20</td>
<td>$1000</td>
<td>$5242.88</td>
</tr>
<tr>
<td>21</td>
<td>$1000</td>
<td>$10485.76</td>
</tr>
<tr>
<td>22</td>
<td>$1000</td>
<td>$20971.52</td>
</tr>
<tr>
<td>23</td>
<td>$1000</td>
<td>$41943.04</td>
</tr>
<tr>
<td>24</td>
<td>$1000</td>
<td>$83886.08</td>
</tr>
<tr>
<td>TOTAL</td>
<td>$24000</td>
<td>$167772.15</td>
<td>after 24 days</td>
</tr>
</table>

The above figures do show the power of compounding very well, but what they really showed me was that to make the most of compounding you need to be very frugal early on in your investing life. If in the first few days an amount of just a few cents was spent this would have seriously affected the end result.

Anyway I found it interesting....I hope someone else does.

 

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Les

Reply: 1
From: Mike .


Re: The miracle of compounding
From: Les
Date: 7/22/00
Time: 3:34:15 PM

G'day Scott,

You must have the patience of Job to input all of that.

Scott> The above figures do show the power of compounding very well, but what they really showed me was that to make the most of compounding you need to be very frugal early on in your investing life. If in the first few days an amount of just a few cents was spent this would have seriously affected the end result.

Les> And if you can "jump a few days" and start with say $50 instead of 1c, that helps big-time, too. Now all I need is a vehicle that gains 100% PER DAY !! ;^)

Les