1 Million Dollars Or A Penny Doubled Everyday For 30 Days – What Would You Pick?
Originally Published on SavingsAdvice by Tamila McDonald – reprinted with permission.
The answer to the question, “Would you prefer $1 million or the proceeds from a penny doubling every day for a month?” seems obvious. Most will select the $1 million. After all, a penny is worth nearly nothing to day and after one week, you only have $0.64. The million dollars must be the right answer. Read on to learn about the power of compounding returns, through this powerful example.
At some point, you may have seen the question, “Would you rather have a penny that doubles each day for a month or 1 million dollars?” You may be wondering whether the option you’d instinctively choose is the best option. Fortunately, you can figure it out with a little math. If you had to pick between a penny that doubles each day for a month or 1 million dollars, here’s what you need to know.
Click on the image below to find out how much money you could have in retirement:
A Penny Doubled for 30 Days
The challenging question about which option you’d take is actually based on an Indian fable. The “One Grain of Rice” fable – as it’s generally referred to – involves a raja who was keeping rice from his people. A village girl saw rice falling that was supposed to head to the raja, and, in return for her good deed of collecting it and giving it to the raja, she was offered a reward.
The girl initially asked for one grain of rice. When the raja scoffed, she altered her request to one grain of rice that doubles each day for thirty days. The raja accepted, only to discover that the end sum was quite sizeable.
In many cases, a person’s first instinct when asked to choose between a penny that doubles each day for a month or 1 million dollars is to take the million. Mainly, it’s because $1,000,000 and $0.01 are so vastly different, making it appear like the penny option couldn’t catch up.
How Much is a Penny Doubled for 30 Days?
However, by going with the penny instead, you actually come out dramatically ahead. Here’s the full breakdown by day:
Day 1 – 10
At the end of day 10, you have a whopping $5.12. If you were presented again with the choice, you might be thinking about changing your answer.
Day 11 – 20
After day 20, you’re up to more than $5,000. Still, nowhere near the $1 million. But, certainly better than the $5+ that we had after the first 10 days. So far, you’re learning to be patient and that compounding starts out slowly.
Day 21 – 30
After one month, the penny doubling every day earns more than $5 million. Yet, notice how the bulk of the wealth was built during the final week. With compounding, as the base amount of money grows, it’s easier and easier to earn magnificent sums.
Unfortunately, this is just an example. A 100% daily return that lasts for a month, as exhibited by a penny doubled for 30 days, is not realistic. If you invest in stocks for 20+ years, it’s likely that you’ll earn the historical stock market average of 9-10% annually. But tremendous wealth can be achieved with regular investing, patience, and allowing your money to compound.
This is a lesson about the power of compounding. Although it’s unlikely that you’ll earn 100% every day on your investments, even compounding at 9%, like the historical stock market returns, leads to impressive returns over the long term.
Ultimately, choosing the penny doubling daily leads to more than five times the million-dollar alternative. Many consider this a lesson of the power of investing and long-term monetary growth, showing just what could happen if you commit to regular investing so that your money is working for you.
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