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When it comes to investing money, you will always get the tip to invest for the long term in order to Use "the power" of compound interest to be able to do so. It is also said that the effect of compound interest is difficult to imagine.
In this post, we'll look at just that and pick up on a well-known story that will help you understand the "8th Wonder of the World"as Albert Einstein described compound interest, shows.
This story is about a grain of rice, chessboard and a king who lost his kingdom!
Once upon a time there was a clever man who had invented the game of chess. His king wanted to reward him for this invention and told him to may express a wish. The wise man, however, desired neither riches nor fame. He only asked for a simple chessboard and a basket full of rice grains. The king, confused and curious at the same time, agreed.
The wise man revealed his plan: He began to fill the chessboard with grains of rice. He placed a single grain of rice on the first square, two grains of rice on the second square, four grains of rice on the third square and so on. The king, who did not realise the implications of this wish, thought the proposal was unspectacular and agreed.
With each field on the chessboard doubled the wise man the number of grains of rice.
While the rice grains were only a modest amount in the first fields, they began to Grow exponentially on the later fields.
Small quantities quickly become the quantity of a whole sack full of rice.
At Field 30 arrived, we are already talking about Thousands of (modern) freight wagons from trainswhich can load 75 tonnes of rice.
And with the amount of rice from Chessboard number 40 can already be seen in the Canton of Zurich and a small part of the Aargau Cover with rice.
Afterwards the Growth so unimaginably greatthat it completely exceeds our imagination (if it hasn't already). Now we can fill so many railway wagons (each loaded with 75 tonnes) with rice and string them together that we can Generate a train that reaches a thousand times around the equator!
So much rice logically exceeds all the productions in the world and the king in the story could therefore not fulfil his promise.
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The above list only shows the grains of rice on each individual square, but not the total of all grains on the chessboard.
To give you some relief, here are a few excerpts, including illustration, how much rice that actually is in tangible quantities.
In total, they end up on the 64th chessboard:
Box 64: 18,446,744,073,709,551,615 grains of rice
18,446,744,073,709,551,615 grains of rice are roughly equivalent to:
Note: Depending on the size, volume and weight of the rice grains considered, the calculation gives a significantly different result at the end. We have calculated various examples for this calculation, other bills and ended up with an average value. A deviation of only half a millimetre of the rice grain consequently makes a gigantic difference to the calculation.
"Intelligent people learn from the mistakes of others".
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The story of the king, the chessboard and the rice teaches us important lessons. It reminds us, How easily we underestimate the effects of exponential growth. It emphasises the Importance of foresight and planningas seemingly small beginnings can lead to unforeseen consequences.
So if you invest a sum of money today and let the money work for you for as long as possible, compound interest already kicks in. On the stock exchange historically, we are talking about a Doubling every 10 years.
Imagine what would happen if you bequeathed your share portfolio to your children and they bequeathed it to their children!
Did you already know the story? If not, would you have expected such growth?
4 responses
Is the historical average annual return on the stock market above 10%?
With a doubling every 7 years, this results in an interest rate of over 10.4%
Z=e^(ln(2)/7)
In Switzerland, we were closer to 10 years and around 7%.
I like the story! But presumably the circumference of the earth at the equator is not 40km as written, but something around 40 THOUSAND km. So the rice train reaches a little more than 1x around the earth. Of course, it is still unimaginable.
Thank you for pointing this out, the thousands sign was lost here. But the calculation was correct 🙂
The train reaches about 1457x around the earth.
Greetings and thank you for taking a closer look!
Eric