The Power of Compounding
Compound Interest. It’s a simple idea. Leave a dollar in an account which pays interest. Say 10% (we all know that a 10% interest account doesn’t exist right now, but still). Come back next year and you will have $1.10. Forget about it for another year and suddenly you are earning 10% of $1.10 and not $1. By the end of year two you have earned an extra $0.11, vs $0.10 the first year. Incredible right?! I know it doesn’t sound very impressive. But let me explain. Where time is your friend. With compound interest, time is your friend. You may have heard the story of the king and the chess playing sage that goes a little like this: A great king who loved chess travelled across the land to meet a chess playing sage. In order to motivate the sage to play a game with him, the king offered any reward the sage could want. The sage asked only for a few grains of rice distributed in the following way. If he won, the king was to place a single grain of rice on the first square of the chess board on day one. On day two he was