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The Power of Compounding: From Paper to the Moon
Albert Einstein famously called compound interest the "eighth wonder of the world," saying, "He who understands it, earns it … he who doesn't, pays it." This simple truth is the core of smart investing, and it’s no surprise that people are fascinated by the concept of compounding.
What is the Rule of 72?
The Rule of 72 is a quick and simple way to estimate how long it will take for your investment to double in value, given a fixed annual rate of return. It's a mental math shortcut that can help you make informed financial decisions and set realistic expectations. So how does this estimate work? It's incredibly straightforward:
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Take the number 72.
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Divide it by your expected annual rate of return (as a whole number, not a decimal).
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The result is the estimated number of years it will take for your investment to double.
This simple trick vividly illustrates how allowing your investments to grow through compounding can actually play out over time.
The compounding mindset
However, here is where it gets more exciting: compounding isn’t just a financial tool, it’s actually a mindset. Those who understand the power of compounding are the ones who seize opportunities and make time their greatest tool in building wealth. By investing wisely and allowing their returns to accumulate, they set themselves up for long-term success. On the flip side, people who don’t understand it often fall victim to short-term thinking, chasing quick a win or getting trapped in high-interest debt. They end up on the paying side of compounding, where missed opportunities and growing debts stack up against them. To see how powerful compounding can be, the next paragraph shows a fun thought experiment: imagine earning 100% returns, compounded 100 times. The numbers grow exponentially, showing how the magic of compounding can work over time.
And compounding isn’t just for money—it's everywhere
Ever wonder how many times you’d need to fold a piece of paper in half for it to reach the Moon? It might seem impossible at first, but exponential growth makes it surprisingly achievable! The distance from Earth to the Moon is about 384,000 km, or roughly 3.84 x 10¹² sheets of paper if each sheet is 0.01 cm thick. With each fold, the paper’s thickness doubles, fold it once, it’s 2 sheets thick. Two folds, it's 4 sheets thick. Fold it three times, and it's 8 sheets thick.
Here’s the wild part:
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After just 9 folds, your paper would be thicker than a stack of 500 sheets.
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By 20 folds, it would be roughly over 10 kilometers high—taller than Mount Everest!
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After 24 folds, you'd reach outer space.
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By 42 folds, the paper would be thick enough to stretch all the way to the Moon!
Though folding paper that many times isn't practically possible (the current record is 13 folds using a 13,000-foot roll of toilet paper), the math is correct. In fact, if you wanted to create something as big as the entire visible universe, you’d only need 94 folds.
Source: Medium, Ethan Siegel
That’s the power of exponential growth—whether in investing or paper folding, the results can be mind-blowing. The real question is: are you taking advantage of it, or letting it work against you? The choice is yours!
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