The Cost of Waiting - A Different Way to Look at It

[Brady Mullen]

You've probably heard the "would you rather" scenario about being offered $1M or a penny that doubles every day for a month, right?

Well, consider this little twist…

So, in case you haven't heard, a penny that doubles 30 times is much more than $1M. It's $5.4M!

Hopefully we've experienced enough compounding "aha" moments that we know to not trust our instincts - compounding regularly defies our intuitions.

What if instead of starting the penny today, you put it off until tomorrow? Maybe your kid needs a ride to soccer tonight, or you're going to Scott's house for dinner, or you got sucked into some funny social media videos. It can wait until tomorrow.

If you start the penny tomorrow, then tomorrow, you'll only be behind by 1 penny, right?

But on the 30th day, you're behind by $2.7M!

By waiting, we give up what happens at the end of the compounding equation, not at the beginning. The difference in the beginning is always unnoticeable (or at least unimpressive), but it's the end we're sacrificing.

You may object by saying, "I'll just have to invest a little longer to make up." But that's not really what's on offer here. If there were more time, then you'd be even further behind! You'd have one more day to double the $5.4M to $10.8M!

Now, I don't know an investment that will double your money every day, but it helps align our intuitions with reality.

Waiting to do something that is financially smart (and therefore usually involves compounding) costs much more than our intuitions would indicate. We sacrifice what happens at the end!