Would you rather get a penny doubled every day for a month or a million dollars? I saw this question the other day, and it reminded me of one of my favorite stories from high school math (yes, that’s very weird, but this is a personal finance blog).
So, before I tell the story, think about it:
If the genie appeared and gave you a choice, what would you choose? Would you rather have a penny today, which doubles every day for a month, or a million dollars today?
The truth is that many people get caught up in the initial amounts: $1,000,000.00 versus $0.01.
But let’s share a story Grain of ricea sports legend from India. You will soon realize which one is better.
The story of a grain of rice
Long ago in India, there lived a Raja who believed himself to be wise and just, as a Raja should be. The people in his province were rice farmers. The Raja decreed that everyone must offer him almost all their rice. “I will store rice safely,” the Raja promised the people, “so that everyone will have rice to eat in time of famine, and no one will go hungry.” Every year, the Raja’s rice gatherers collected almost all the people’s rice and carried it away to the royal storehouses.
For many years, rice grew well. The people gave almost all their rice to the Raja, and the storerooms were always full. But people only have enough rice left to survive. Then one year, the rice grew poorly, and there was famine and hunger. The people had no rice to offer the Raja, and they had no rice to eat. The ministers of Raja begged him, saying: “Your Highness, let us open the royal storerooms and give rice to the people as you promised.” “no!” Raja cried. How do I know how long the famine will last? I should get rice for myself. Promise or no promise, the Raja must not go hungry!”
Time passed, and people became more and more hungry. But the Raja did not distribute rice. One day the Raja ordered a feast for himself and his court, as it seemed to him that a Raja must do now and then, even when there is a famine. A servant led an elephant from a royal storeroom to the palace carrying two full baskets of rice. A village girl named Rani saw a quantity of rice falling from one of the baskets. She quickly jumped up and walked alongside the elephant, catching the falling rice in her skirt. She was smart, and started to come up with a plan.
One of the guards in the palace shouted: “Stop, thief! Where are you going with this rice?”
“I am not a thief,” Rani replied. “This rice fell from one of the baskets, and I will now return it to Raja.”
When the Raja heard about the Rani’s good deed, he asked his ministers to bring her before him.
“I want to reward you for returning what belongs to me,” Raja said to Rani. “Ask me anything, and I’ll be yours.”
“Your Highness,” said the Rani, “I do not deserve any reward at all. But if you wish, you can give me one grain of rice.”
“Just one grain of rice?” Raja shouted. “Surely you will allow me to reward you more generously, as a Rajah should.”
“Very well,” said Rani. “If you wish, Your Highness, you can reward me in this way. Today, you will give me one grain of rice. Then, every 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 days.”
“This seems to be a modest reward,” Raja said. “But you should get it.”
He gave Rani one grain of rice.
The next day, Rani was served two grains of rice.
The next day, Rani was served 4 grains of rice.
On the ninth day, 256 grains of rice were offered to Rani. I got five hundred and eleven grains of rice, just enough for a small handful. “This girl is honest,” thought the Raja, “but she is not very clever.” “She would have earned more rice if she had kept what fell into her skirt!”
On the twelfth day, Rani received 2,048 grains of rice, or about four handfuls.
On the thirteenth day, she obtained 4,096 grains of rice, enough to fill a bowl.
On the 16th day, Rani received a bag containing 32,768 grains of rice. She had enough rice for two bags. “This doubling adds more to the rice than I expected,” Raja believes. “But it is certain that her reward will not amount to much more than that.”
On the 21st day, she received 1,048,576 grains of rice, enough to fill a basket.
On the twenty-fourth day, 8,388,608 grains of rice were offered to the Rani – enough to fill eight baskets, which were carried to her by eight royal deer.
On the twenty-seventh day, thirty-two Brahma bulls were needed to deliver sixty-four baskets of rice. Raja was very disturbed. “One grain of rice has grown very large,” he thought. “But I will honor the reward to the end, as a Raja should.”
On the twenty-ninth day, Rani was handed over the contents of two royal storerooms.
On the thirtieth and final day, two hundred and fifty-six elephants crossed the province, carrying the contents of the last four royal storerooms—536,870,912 grains of rice.
Together, Rani received more than One billion grains of rice. The Raja had no more rice to offer. “What are you going to do with this rice,” said the Raja with a sigh, “now that I have nothing?”
“I will give it to all the hungry,” said the Rani, “and I will leave you a basket of rice too, if you promise from now on to eat only as much rice as you need.”
“I promise,” Raja said. For the rest of his days, the Raja was truly wise and just, as a Raja should be.
The power of compound interest
Now that you’ve read the tale, you can see that the choice is pretty clear: Better to have a penny doubled every day for a month, than a million dollars up front. This is because of the power of compound interest.
If you took a penny and doubled it every day, by the thirtieth day, you would have $5,368,709.12.
However, it’s important to note that it’s all about the power of compounding – if you asked the same question, but changed the compounding time to just 27 days, you would only have $671,088.64.
Key investment takeaways
The main takeaway from all of this should be: Start investing early and often. The biggest gains and returns almost always occur later in life. If you started investing in your portfolio today and earned a modest 6% return, that might not seem like a lot of money today.
But in 30 years? If you earn a 6% return over your lifetime, you’ll start seeing huge returns later in life as you get closer to retirement.
Remember, investing is a long-term endeavor, you shouldn’t be looking to double your money in 3-5 years. You should look to grow your money over time. Remember, the Rule of 72 will guide you on how long it will take to double.
What do you think of the story of the grain of rice?
