Doubling your penny

Here is a little test that may blow your mind as it did mine when I came across it just before Christmas:

Imagine it’s the very first day of the year. 1st of January 2020 and I’m going to offer you the choice between scenario A or B below. 

  1. I put £1million into your bank account today
  2. I give you one single penny instead but that cash amount will double every single day until the end of January. 

 

Which would you choose?

Off the cuff, most would firmly be in the camp of scenario A. Give me my million quid double quick and be done with it.
I have tested this out on a few people already, asking them what they estimate starting with a penny and doubling it 31 times would leave them with. Most people guess at a figure somewhere between £1,000 and £100,000. My first guess was somewhere in the middle of those two.

The answer is £21,474,836.

I know right, what the actual f*ck.

The even more crazy thing is that on day 20 of the 31 the total amount is still only a paltry £10,485. This demonstrates the power of the 8th wonder of the world: compound interest. It is the classic ‘hockey stick’ scenario, where it pretty much flat-lines until right at the end and then that doubling impact takes it on to whole new levels.

This is the lesson to be learned when investing for the long term. It is not about the first 1 or 2 decades, it is about the 3rd, 4th and 5th decade. It is during this period that the sums you have invested will hit dizzy new heights, soaring above and beyond your initial estimates.

While I appreciate that a 100% return for 31 days in a row is never going to be achievable, whatever crazy investments you’re thinking of, it still gives a compelling argument.

If nothing else, if ever anyone offers you £1million upfront or the chance to double a penny every day for a month, then you know which option to take.
 
Well, you never know, stranger things have happened.


Alfie Mullan, January 2020