Imagine that a stranger walks up to you tomorrow and either offers you a one time payment of one million dollars ($1,000,000) in cash now or offers you a ‘magic penny’ that doubles in value everyday for thirty-one days. In other words, when you wake up the next day, you miraculously have two pennies; on day three, four pennies; on day four eight pennies, and so forth.
Which would you take?
Believe it or not, thanks to the magic of compounding, the ‘magic penny’ would be worth over $10 million dollars after thirty-one days. In other words, you would be better off taking the ‘magic penny’ than accepting a one-time payment of $1,000,000. The illustration below shows the math:
Investing Early Is Crucial
Getting started saving and investing early is perhaps the most important retirement axiom in personal finance. The magical penny not only provides a vivid example of the sheer power of exponential growth, but also helps reinforce the value of early savings. By missing just the first nine days of the thirty-one days results in a significant difference in final outcome in accumulated values.
Reference: