The Power of Starting Early in Investing

Investing can be a powerful tool to grow your wealth, but it’s crucial to understand the principles involved. One important concept is compounding, where you earn interest on your interest, leading to significant growth over time. The story of the “back half of the chessboard” is a great example of how compounding can work.

According to the “back half of the chessboard”, when chess was presented to a great king, the inventor asked for a single grain of rice to be placed on the first square of the chessboard, two grains on the second square, four grains on the third, and so on, doubling each time. The king agreed, but by the time they got halfway through the chessboard, the amount of rice required was more than the entire kingdom possessed.

On the 64th square of the chessboard alone, there would be 263 = 9,223,372,036,854,775,808 grains (i.e. more than two billion times as many as on the first half of the chessboard.)

This story also illustrates the power of exponential growth, where small gains can lead to significant growth over time. Also, it’s important to start investing early to take advantage of this power. By investing even small amounts regularly and allowing them to compound over time, you can build a significant portfolio.

However, it’s essential to invest with a clear objective to grow your wealth, not just to save tax. Tax-saving investments can be beneficial, but they should not be your only focus. Instead, consider your long-term goals, such as retirement or buying a home, and invest accordingly.

Diversification is also crucial in investing. Don’t put all your money into one asset class or investment. Instead, spread your investments across various assets like stocks, bonds, and real estate. This will help to reduce your overall risk and increase the chances of a better return on your investment.