Have you heard of the legend of a king and a skilled mathematician?
The story where the king challenges the mathematician to a game of chess? While eventually the mathematician agrees, he puts forth a condition that if the king loses, he will have to give the mathematician a certain number of rice grains.
How many? Well, the same number of grains that will be collected if they are arranged on the chess board in such a way that the first square has one grain, the second one two grains, the third one has four grains and so on. The condition is to go all the way to the 64th square on the board such that every square has twice the number of grains of the previous square.
Doesn't look like a difficult job for a king to accomplish isn't it? Especially when his granaries are overflowing. However, try pulling out a calculator and calculate what the number of grains will come to and I can guarantee that the numbers will shock you.
When all the grains will be finally laid out, the 64th square will have a mind-boggling, 9.2 quintillion grains! That's like 230 billion tons of rice, almost half the quantity of rice the entire world currently produces!
What just happened? How come a process that started with just one grain grew into something so big that it went beyond the realms of imagination?
What made this possible was something that Einstein calls the eighth wonder of the world. We are referring to the power of compounding.
Trust me, if you want to be successful in life, this is one concept you'd do well to remember. Let me give you another example. Do you know that the Sensex has risen at a rate of around 17% per annum ever since it was set at 100 back in 1979-80?
While 17% may not look all that much when compared to the 9%-10% that other instruments like fixed deposits and bonds are likely to give, let us tell you that the Sensex would have multiplied your wealth by a whopping 270 times!
And what would have the ever so popular FDs and bonds returned in the same period? Well, they would have been up just around 28x, nearly 1/10th of what you would have earned had you been in stocks instead of bonds. I think that's a huge difference by any stretch of imagination.
So what? I could almost hear you saying this. Stocks are so risky. It's better to invest in something that gives low returns as long as the capital is safe.
This is the myth that's most damaging to your wealth as far as I am concerned. You see, all the worst things that would have happened to the Indian economy have happened in these past 35 years. Yet, the Sensex has kept on setting one new record after another. As long as one invests from a long term perspective, stocks can be considered quite safe. With, of course, the added benefits of giving those extra returns which add up to a hell of a lot of money over the long term.
If you haven't yet added stocks to your investment portfolio, it may not be a bad time to do so. However, do not forget to invest from a long term perspective and to do a fair share of homework about the stocks you are buying. If this is not your cup of tea, go ahead and consider a good mutual fund.
Start putting at least some part of your savings in stocks and let the power of compounding work its magic on your wealth.
The story where the king challenges the mathematician to a game of chess? While eventually the mathematician agrees, he puts forth a condition that if the king loses, he will have to give the mathematician a certain number of rice grains.
How many? Well, the same number of grains that will be collected if they are arranged on the chess board in such a way that the first square has one grain, the second one two grains, the third one has four grains and so on. The condition is to go all the way to the 64th square on the board such that every square has twice the number of grains of the previous square.
Doesn't look like a difficult job for a king to accomplish isn't it? Especially when his granaries are overflowing. However, try pulling out a calculator and calculate what the number of grains will come to and I can guarantee that the numbers will shock you.
When all the grains will be finally laid out, the 64th square will have a mind-boggling, 9.2 quintillion grains! That's like 230 billion tons of rice, almost half the quantity of rice the entire world currently produces!
What just happened? How come a process that started with just one grain grew into something so big that it went beyond the realms of imagination?
What made this possible was something that Einstein calls the eighth wonder of the world. We are referring to the power of compounding.
Trust me, if you want to be successful in life, this is one concept you'd do well to remember. Let me give you another example. Do you know that the Sensex has risen at a rate of around 17% per annum ever since it was set at 100 back in 1979-80?
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| Source: Mopic / Shutterstock |
While 17% may not look all that much when compared to the 9%-10% that other instruments like fixed deposits and bonds are likely to give, let us tell you that the Sensex would have multiplied your wealth by a whopping 270 times!
And what would have the ever so popular FDs and bonds returned in the same period? Well, they would have been up just around 28x, nearly 1/10th of what you would have earned had you been in stocks instead of bonds. I think that's a huge difference by any stretch of imagination.
So what? I could almost hear you saying this. Stocks are so risky. It's better to invest in something that gives low returns as long as the capital is safe.
This is the myth that's most damaging to your wealth as far as I am concerned. You see, all the worst things that would have happened to the Indian economy have happened in these past 35 years. Yet, the Sensex has kept on setting one new record after another. As long as one invests from a long term perspective, stocks can be considered quite safe. With, of course, the added benefits of giving those extra returns which add up to a hell of a lot of money over the long term.
If you haven't yet added stocks to your investment portfolio, it may not be a bad time to do so. However, do not forget to invest from a long term perspective and to do a fair share of homework about the stocks you are buying. If this is not your cup of tea, go ahead and consider a good mutual fund.
Start putting at least some part of your savings in stocks and let the power of compounding work its magic on your wealth.
(By Rahul Shah in their own words)
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