Have you ever heard the story about the invention of the game of chess? Well the story goes something like this…..
Once upon a time there was a very clever Indian mathematician who invented a board game that he called ‘Chess’. He took the game and showed it to the Emperor of India. The Emperor was so impressed with the game that he said to the inventor to name his price.
The mathematician replied that all he wanted was a single grain of rice for the first square, two grains for the next square, four for the next, and eight for the next and so on for all sixty four squares on the board.
The emperor chuckled to himself and immediately agreed; amazed that such a clever man would ask for so little. However, about a week later much to the emperor’s horror the treasury informed him that the reward would add up to a mindboggling sum, far greater than all the rice that could conceivably be produced in many, many centuries!”
Now thinking that I could be really smart and provide you with the actual figure I cleverly opened excel and set about quickly calculating the figure. But believe it or not, the numbers are too big! After just 37 squares the inventor would be entitled to an amazing 68,719,476,736 grains of rice!
So I consulted Wikianswers and was quickly informed that “the average amount (of rice in a ton) would be 36,590,000 grains”. So at the 37th square we are already at about 1,878 tons.
So just how much rice would the mathematician be entitled to?
Well according to wolframalpha.com the inventor would be entitled to 9,223,372,036,854,775,808 (or 9 Quintillion or 9 Billion Billion) grains of rice! Or 252,013,573,021 tons, but for ease of the numbers let’s just call it 250 Billion tons…. – Even this number is too big for the current US debt which is still only about $16,226,340,919,192 (but growing!)
I think this number is even too big for economists, so to try and put this sort of number into context as a comparison it is:
- 2.4 times the total number of people who have ever lived
- Or 84% of the total number of stars in our galaxy. (….and I was wondering why excel was struggling?!).
Given that current world rice production is about 480 Million tons, the Emperor’s treasury was correct that it would owe many, many years of production. The story goes on to say that the Emperor not to be outsmarted, said that he would honour the agreement on the condition that the mathematician counts each and every grain……..
My point with all these crazy calculations is it to illustrate the power of compound interest. “Compound interest arises when interest is added to the principal, so that, from that moment on, the interest that has been added also earns interest”. All that the mathematician was asking for was to compound his initial grain of rice at 100%, 63 more times.
“Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”
Many credit Albert Einstein with this quote or some variation of it. I’ve not been able to find the source so am sceptical of its authenticity. But don’t let this take your attention away from the quality of this quote. If you do not understand the rules of a game you have NO chance of winning. By understanding the rules of the investment game you can develop strategies to win.
Compound Interest is just one of the rules of the game of investment. You also need a complete understanding of “the Effortless Advantage” because as investors it is important that we not only chase but capture “the Effortless Advantage”. History shows us that those who own and control “the Effortless Advantage” will reap far more rewards than the diligent person that does the work. To see how to include this knowledge into your investment plan click on the button below to watch the Economic Cycle Action Plan video or contact us.
This is the true road to wealth, controlling, compounding and receiving your “Effortless Advantage” by taking action at the appropriate time. Give us a call and lets get started!