If someone offered you the choice of $1 million today, or one penny that would double itself every day for a month, which would you rather take? If you're not sure, consider the grain of rice principle to learn how to think about investments. Photo by Jiří 伊日.
As personal finance blog The College Investor points out, we have a tendency to get hung up on initial amounts. $US10 today doesn't matter much. It's just ten bucks, right? However, the power of growing a small amount over time is more powerful than the amount itself. The site explains this with a story about an Indian raja and a girl who saved some of his rice:
"Your highness," said Rani, "I do not deserve any reward at all. But if you wish, you may give me one grain of rice." "Only one grain of rice?" exclaimed the raja. "Surely you will allow me to reward you more plentifully, as a raja should."
“Very well,” said Rani. “If it pleased Your Highness, you may reward me in this way. Today, you will give me a single grain of rice. Then, each day for thirty days you will give me double the rice you gave me the day before. Thus, tomorrow you will give me two grains of rice, the next day four grains of rice, and so on for thirty day.”
...On the thirtieth and final day, two hundred and fifty-six elephants crossed the province, carrying the contents of the last four royal storehouses- 536,870,912 grains of rice. All together, Rani had received more than one billion grains of rice. The raja had no more rice to give.
As the story goes, the raja didn't recognise the value of a single grain of rice doubling over time, and it cost him his entire storehouse. As a parable, it might sound silly, but it's the sort of trade we make all the time. $5 today could be $500 or $5000 in the future, depending on how we invest it. If you're not used to thinking long-term about your money, consider the value of a single grain of rice to start to change your thinking.
Would You Rather Have a Penny That Doubles Each Day For a Month or $1 Million? [The College Investor via Rockstar Finance]