Make Friend with Time: Compound Effect

Anyone watching Game of Thrones? Many people love stories about Kings and Queens. I’ve got another story for you today. 

Once upon a time, there was a King. He hosted a chess tournament for farmers. That’s weird, I know.  But he did it anyway. One of the farmers won. The King asked the farmer what he wanted as his prize. The farmer said, “I just want some wheat and I don’t want much. I want one kernel of wheat on the first square of the chess board, 2 kernels on the second square, 4 kernels on the 3rd square, 8 kernels on the 4th square, and so on.” The King said “That’s easy!” and he happily agreed. 

One of the King’s advisors said to the King. “Your grace. We cannot afford that. To fill the last square, the 64th, there will need to be 1.8 times 10 to the 19th power kernels of wheat, which is 740 thousand billion lbs.” The King got mad, and he said: “Burn them all!” Oh, well. He didn’t really say that. I guess I watched too much Game of Thrones.  But the King was very angry, that’s for sure. 

Then another King’s advisor said, “Don’t worry, your grace. All you have to do is to tell the farmer this “I cannot give you all the wheat in one day. But I can fulfill one square for you each day. ” The King said the same to the farmer and the farmer happily agreed. 

Guess what happened? The farmer starved to death on day 8. Because he had only one kernel to eat on the first day, 2 kernels the second day, 4 kernels for the 3rd day, and even on the 8th day, he only got 256 kernels, which was only about 2ounces, far less to support his life. 

What the farmer asked for was actually an exponential curve. The growth rate is always applied to the current value, not to the original value at the beginning. So it is also called compound rate, or compound effect. With the exponential curve, If you could make friend with time, and be patient, you will gain a lot. But the disadvantage of the exponential curve is that it has a very limited result at the very beginning. 

Albert Einstein once said Compound Rate was the eighth wonder of the world. Then how can we take advantage of the exponential curve and the compound effect? 

One important application is in investment. S&P 500 stock index fund is the most recommended investment by Warren Buffett. The compounded return of the S&P 500 Index is 10% for the last 50 years, and 8% for the last 10 years.

If you could invest $1,000 each month, and invest 30 years, then with 8% return rate, how much do you think you can get? Anyone wants to take a shot. 

It’s 1,359,398.53, nearly 1.4 million. I think that’s enough for retirement. 

I am using this formula for my retirement plan and I feel a sense of security financially. 

But someone might ask what if I am not interested in investment. Can I utilize the compound effect in other areas? I say, Anything and Everything. 

In 2008, I graduated and started my career in an American company. Although I had learned English for many years in school, I found my vocabulary was actually limited. So since 2009, I started to improve my vocabulary. I learn and review new words every day. I have been doing so since then. It’s been 10 years. The other day, I took a test on vocabulary and I was told I had 20,000 words in my vocabulary. 

Last year, I decided to try writing and public speaking. I know I have a long way to go, but I am confident because I have made friend with Time so he is on my side. 

Some members mentioned she wanted to be a licensed nurse, some said he wanted to write a book about children’s diet. Some said he wanted to switch from the industry to academia and become a professor. 

What about you? What is it that you want to do with your life? It’s never too late to think about it. 

But whatever it is. As long as you Make friend with Time, be patient, make a little progress each day, then with the compound effect, I am sure your dream will come true.

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