How many times do I need to double my money to reach the moon?
The Power Of Compounding and Time
I have one $5 note. It is the only thing in my stack of money. One note. Half a millimeter thick. But this pile is going to double every day. Tomorrow I will have two notes. The next day four.
How many times would I need to double my pile until my pile reached the moon (384,000km away)?
The answer is 40.
Not 40 thousand. Just 40. This is because of the power of compounding and exponential growth over time.
Here is the proof:
How many doubles | Millimeter | KM |
0 | 0.5 | 0.0000005 |
1 | 1 | 0.000001 |
2 | 2 | 0.000002 |
3 | 4 | 0.000004 |
4 | 8 | 0.000008 |
5 | 16 | 0.000016 |
6 | 32 | 0.000032 |
7 | 64 | 0.000064 |
8 | 128 | 0.000128 |
9 | 256 | 0.000256 |
10 | 512 | 0.000512 |
11 | 1024 | 0.001024 |
12 | 2048 | 0.002048 |
13 | 4096 | 0.004096 |
14 | 8192 | 0.008192 |
15 | 16384 | 0.016384 |
16 | 32768 | 0.032768 |
17 | 65536 | 0.065536 |
18 | 131072 | 0.131072 |
19 | 262144 | 0.262144 |
20 | 524288 | 0.524288 |
21 | 1048576 | 1.048576 |
22 | 2097152 | 2.097152 |
23 | 4194304 | 4.194304 |
24 | 8388608 | 8.388608 |
25 | 16777216 | 16.777216 |
26 | 33554432 | 33.554432 |
27 | 67108864 | 67.108864 |
28 | 134217728 | 134.21773 |
29 | 268435456 | 268.43546 |
30 | 536870912 | 536.87091 |
31 | 1073741824 | 1073.7418 |
32 | 2147483648 | 2147.4836 |
33 | 4294967296 | 4294.9673 |
34 | 8589934592 | 8589.9346 |
35 | 17179869184 | 17179.869 |
36 | 34359738368 | 34359.738 |
37 | 68719476736 | 68719.477 |
38 | 1.37439E+11 | 137438.95 |
39 | 2.74878E+11 | 274877.91 |
40 | 5.49756E+11 | 549755.81 |
Evolution has left us with a brain that is quite good at guestimating small liner maths – but sometimes it can be a struggle when it comes to a formula that includes ^ (to the power of).
So when you see something growing at 7% or 10% p.a. you might think this is not a big difference. Over 40 years it can be huge.
If you had $100,000 in super and it grew at 10% not 7% for 30 years, you would have $1,700,000 rather than $760,000. Almost a million dollars better off.
Big differences can result from such a small change in return and starting your journey with 20 years to retirement rather than 5.
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