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An Investor’s Perspective: The Story of Rice and Chessboard

“Doesn’t matter where you start, it’s how far you go and whether you withdraw anything along the way”

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rice and chessboard
The total number of rice grains needed to fill the chessboard would be 18,446,744,073,709,551,615. Shutterstock

In life, you need to have both knowledge and experience to reap the most significant dividends. Without one, the other will always yield fewer results. Take the classic story of rice and chessboard, for instance. The story, where a sage after serving a king well asked the king to fill a chessboard by putting rice grains in each square. The count must start with one grain but should double the number in the next square.

‘How much rice could it take?’ thought the king and ordered the sage’s wish fulfilled. He couldn’t have been more wrong.

How Much Rice Will Fill the Chessboard?

The total number of rice grains needed to fill the chessboard would be 18,446,744,073,709,551,615. That is more than 18 quintillion rice grains with an approximate weight of 210 billion tonnes.

India currently produces an approximate 100 million tonnes of rice each year. At this rate of production, it will take the country more than 2,000 years to grow enough rice to pay the sage entirely.

Crux of the story?

“Doesn’t matter where you start, it’s how far you go and whether you withdraw anything along the way.”

investor's perspective, rice and chessboard
For instance, when you invest in a mutual fund, you earn interest on the principal amount. Furthermore, you reinvest your earnings or earned interest to receive additional units. Pixabay

What’s Compounding & How Does it Work?

Compounding works pretty much the same as the chessboard rice count. And there’s much to learn from this story if you wish to compound your wealth. In today’s day and age, who wouldn’t like to see their money grow?

In case of investments, compounding implies earning an “interest on interest.” In other words, compounding is similar to a multiplier effect because the interest earned on the initial capital also earns interest. As a result, the value of your investment grows exponentially rather than linearly.

The benefits of compounding are prominent in the long-term investment period. For instance, when you invest in a mutual fund, you earn interest on the principal amount. Furthermore, you reinvest your earnings or earned interest to receive additional units.

This way, you can earn a return on both dividends and the principal. This is essentially how compounding works: the principal amount is combined with the re-invested income, and your investment grows at an increased rate.

For example, an investment of Rs. 1,000 every year will grow up to Rs. 1,84,166 at an annual interest rate of 8 percent in 10 years. At the same rate of interest, you may earn up to Rs. 5,92,947 in 20 years. As you can see, when you invest for an extended period in a market-linked instrument such as a mutual fund, SIP or ULIP, you can easily maximize your earnings, courtesy compounding.

investor's perspective, rice and chessboard
ULIPs or Unit Linked Investment Plans offers you the combined benefits of investments and insurance under as a single plan. Pixabay

How Does ULIPs Yield Compounded Return?

ULIPs or Unit Linked Investment Plans offers you the combined benefits of investments and insurance under as a single plan. If you have long-term goals such as buying a house, a new car or sending your child abroad for higher education, ULIPs can help you maximize your savings through compounding, and you get considerably high returns on your capital.

This stands true even when you want to exit the ULIP after the initial lock-in period of five years, in comparison to retaining your money in a savings account or an FD, or not having invested the amount at all.

While a portion of your investment is used to provide life cover, the remaining amount is invested in a variety of equity and debt instruments as per your risk appetite and life goal. Essentially, you can reap the most benefits from the compounding effect by keeping your ULIP going for a longer time horizon.

You have the flexibility to switch between equity and debt fund options under ULIPS, which allows you to secure your investments against market volatilities. The equity investments under a ULIP are made at the prevailing Net Asset Value of the fund (NAV) of the funds. The NAV is the “price’ of each fund unit, which is calculated by dividing the sum of all investments made under the fund by the number of units issued.

investor's perspective, rice and chessboard
The NAV is the “price’ of each fund unit, which is calculated by dividing the sum of all investments made under the fund by the number of units issued. Pixabay

ALSO READ: Is Budget 2019-20 a Hope for India’s Development?

With ULIPs, Compound Your Savings and Happiness Easily

Your wealth can easily grow into a substantial fund amount courtesy the benefits offered by compounding. However, you need to take advantage of the market-linked investments through ULIPs to achieve that.

While ULIP plans from reputable insurers such as Max Life Insurance help you maximize your investments through long-term equity market investments, they also help secure yourself and your loved ones against life’s contingencies with high ULIP returns and life cover.

Remember, if money is like the grain of rice and investment market is the chessboard, your approach and experience only limit you. Play smart and hold the innings together to achieve long term returns.

Next Story

New York Times Report Claims, Donald Trump’s Businesses Lost More Than $1 Billion During Early 90’s

House Democrats are trying to get their hands on Trump's tax returns from 2013 to 2018 as part of their investigation into the president's foreign business deals.

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Developer Donald Trump poses for photos outside the New York Stock Exchange after the listing of his stock in New York, June 7, 1995. VOA

Between 1985 and 1994, Donald Trump’s businesses lost more than $1 billion, allowing the future president to avoid paying federal taxes for eight of those 10 years, The New York Times reported Tuesday.

Trump portrays himself as a successful self-made entrepreneur and master dealmaker. However, he lost more money year after year than any other U.S. taxpayer, according to the Times, which did not use the actual returns but instead used information provided by someone who has access to the returns.

The bulk of Trump’s losses during that period came from his core businesses, including hotels, casinos and retail space inside apartment buildings.

FILE - Donald Trump ascends the stairs with his fist raised from the genie's lamp after opening the Trump Taj Mahal Casino Resort in Atlantic City, N.J., April 5, 1990. Behind Trump is the 42-story hotel.
Donald Trump ascends the stairs with his fist raised from the genie’s lamp after opening the Trump Taj Mahal Casino Resort in Atlantic City, N.J., April 5, 1990. Behind Trump is the 42-story hotel. VOA

They also include failed investments in an airline, a professional football team and unfinished plans for real estate developments.

According to the Times, Trump was able to maintain a life of luxury all those years because most of his money came from banks and bondholders who invested in the Trump empire. Trump also relied on his father’s wealth, according to the report.

But it appears Trump did not break any federal laws because the U.S. tax code allows people to deduct substantial business losses from their income taxes.

airplane
They also include failed investments in an airline, a professional football team and unfinished plans for real estate developments. Pixabay

The White House has yet to respond to the Times story. But one of the president’s lawyers, Charles Harder, told the newspaper that the tax information it used was “demonstrably false.”

“IRS [Internal Revenue Service] transcripts, particularly before the days of electronic filing, are notoriously inaccurate … would not be able to provide a reasonable picture of any taxpayer’s return,” he told the Times.

Also Read: “Voluntary Commitments” To The Six-Nation Nuclear Deal: Iran

House Democrats are trying to get their hands on Trump’s tax returns from 2013 to 2018 as part of their investigation into the president’s foreign business deals.

Treasury Secretary Steven Mnuchin has so far declined, saying the request has no “legitimate legislative purpose.” (VOA)