The Power of Compounding

The power of compounding

Imagine you win a $1 prize. If you don't claim it for a year, it will be doubled. And then the sum will be doubled every year until you claim it. After 20 years you will become a millionier, you will be richer than Elon Musk after 38 years and after 47 years you will own the world as your wealth will exceed the entire planet's GDP ~$97 trillion. Here is it how it compounds.

After Year 1 : 2
After Year 2 : 4
After Year 3 : 8
After Year 4 : 16
After Year 5 : 32
After Year 6 : 64
After Year 7 : 128
After Year 8 : 256
After Year 9 : 512
After Year 10 : 1,024
After Year 11 : 2,048
After Year 12 : 4,096
After Year 13 : 8,192
After Year 14 : 16,384
After Year 15 : 32,768
After Year 16 : 65,536
After Year 17 : 131,072
After Year 18 : 262,144
After Year 19 : 524,288
After Year 20 : 1,048,576
After Year 21 : 2,097,152
After Year 22 : 4,194,304
After Year 23 : 8,388,608
After Year 24 : 16,777,216
After Year 25 : 33,554,432
After Year 26 : 67,108,864
After Year 27 : 134,217,728
After Year 28 : 268,435,456
After Year 29 : 536,870,912
After Year 30 : 1,073,741,824
After Year 31 : 2,147,483,648
After Year 32 : 4,294,967,296
After Year 33 : 8,589,934,592
After Year 34 : 17,179,869,184
After Year 35 : 34,359,738,368
After Year 36 : 68,719,476,736
After Year 37 : 137,438,953,472
After Year 38 : 274,877,906,944
After Year 39 : 549,755,813,888
After Year 40 : 1,099,511,627,776
After Year 41 : 2,199,023,255,552
After Year 42 : 4,398,046,511,104
After Year 43 : 8,796,093,022,208
After Year 44 : 17,592,186,044,416
After Year 45 : 35,184,372,088,832
After Year 46 : 70,368,744,177,664
After Year 47 : 140,737,488,355,328
After Year 48 : 281,474,976,710,656
After Year 49 : 562,949,953,421,312
After Year 50 : 1,125,899,906,842,624

Thats why we should always look at the longer term picture and reinvest (while diversifying). Growth stocks generally outperform value stocks because they reinvest their profits back ionto the business - whci compounds growth.

So, if the prize can only be claimed in your life, how long would you wait?