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The Magic of Compound Interest
The Math Will Blow Your Mind
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
– Albert Einstein
Ever heard of geometric progression?
Near the beginning of his book, The Tipping Point; How Little Things Can Make a Big Difference, author Malcolm Gladwell asks the reader a seemingly simple question: imagine you can take a large piece of paper and fold it over once and then take that folded paper and fold it over again, and then again and again, until you have folded the original piece of paper 50 times…how tall would the final stack be?
As high as a phonebook?
Nope.
As high as a fridge?
No.
Get this: it would reach the sun.
Gladwell explains that in mathematical terms, this is known as geometric progression. “But human beings,” writes Gladwell, “have a hard time with this kind of progression because the end result — the effect — seems far out of proportion to the cause.”
So if you’re like me, and everyone else I’ve posed this paper puzzle to, the answer seems preposterous…
