Would you choose $1mln or a Penny Doubling every day for 30 days? Is it a smart idea to pick a penny over a million dollars? Perhaps, it sounds like a no brainer, I want to show you today the power of a penny!
May 18, 2020 | AtoZ Markets – Imagine you have won a lottery, and you have an option to either pick a million dollars immediately right now or a penny doubling every day for 30 days. Which one would you choose? For most people, of course $1 million will be the go-to option. But they don’t know the power of compounding!
A penny can be stronger than $1 million!
If you took a penny on the first day of the month and doubled it every day for 30 days, how much would you end up at the end of the month? One cent, two cents, four cents, eight cents…. but at the end of day 30, you would end up with $5,368,709.12! Yes, you can become a millionaire! Surprised?
This is the power of compounding money over and over for staggering returns. This explains this quote from Jesse Livermore:
“If a man didn’t make mistakes, he‘d own the world in a month. But if he didn’t profit by his mistakes, he wouldn’t own a blessed thing.” ~ Jesse Livermore
What exactly is wrong with the penny a day doubling formula math explained above? Nothing, really. Except that you are simply looking at the cent doubled as a simple amount, rather than a cumulative amount.
But in Forex trading as an example, this mindset is wrong, very wrong! You may be profitable and doubling an account for 3-4-5 times, but if you make one big mistake you will be wiped out. So, you need to have proper risk management too.
Compounding in forex
If you double a penny every day for thirty days, you’ll have $0.01 on day one, $0.02 on day two, $0.04 on day four, and so on.
On day 15, you’ll have $163.84, and on day 20, you’ll have $5,242.88. As you keep doubling those pennies, you’ll end up with $5,368,709.12 at the end of thirty days.
Not bad at all!
You see, that’s the beauty of compounding in Forex trading too. As you continue to compound on your initial investment as well as the interest that it accrues, you’ll grow your wealth more and more.
While there are different versions of the story, the principle is the same: if you allow even a small amount of money to accrue interest (and you save that money, of course), you can end up with far more than if you had just accepted a seemingly large amount and stuck with it.
Double a penny in the real world
Although the double a penny concept is a fun mental exercise, it doesn’t reflect how things work in the real world.
Not only will you be hard-pressed to find something that gives you a 100% daily interest rate, but you also will need to contend with plenty of real-life obstacles.
As a writer, I speak to many people who are gaining momentum in their business or investments, and they want to put as much money as possible into their stocks, Forex brokers or cryptocurrency investments. These people are running the same kind of double a penny simulation in their own lives as they try to make as much money as they can by taking advantage of compounding interest.
And many of them are starting to make good money, and they want to invest back into the business – but they can’t do it fast enough. Why? Mental challenge!
Paying taxes and spending on status symbols
One of the largest speed bumps that they hit a mental challenge and then it is taxes. You can double a penny, or a dollar, or even $100 dollars. However, the larger your investment account becomes the bigger the mental pressure you will have!
The key takeaway from all of this should be: start investing early and often. The biggest gains and returns always happen later in life. If you start investing in your portfolio today and earn a modest 5% return, that might not seem like a lot of money today. What about in 30 years? Earning a 5% return throughout your life, you’ll start seeing huge returns later in life as you approach retirement.
Remember, investing is a long term endeavor – you shouldn’t be looking to double your money in 3-5 years. You should be looking to grow your money over time.