What is the compounding effect?
What does it mean for you?
The compounding effect is essentially growth on growth. It can significantly increase the size of savings and investments if carefully managed or it can work against you. Remember too that it’s never too late to start taking advantage of compounding. Your goal could be as little as five years away, so get in touch now if you think you’d like to start investing.
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Compounding could help you reach your goals more quickly. Your long-term investments are aligned with your individual aims, attitude to risk, and time frames.
Your ultimate goal might be retirement at 65, say. But, the snowballing effects of compound growth could help you to reach your goals sooner.
As a very basic example - 5% interest on a £10,000 deposit or investment would provide an annualised return of £500. In this scenario, over a 20-year time frame, your initial £10,000 grows to £20,000 (assuming no interest is applied on interest). For compounding to work to your advantage, it needs time and money. You’ll need to start planning for your future as early as possible and, in the case of invested wealth, avoid kneejerk reactions during periods of volatility.
