Are you benefiting from the power of Compound Investing?

Compound Investing is when you reinvest any returns you make on your investments. Rather than taking the income, you reinvest your returns to multiply your growth, essentially earning more. It could make a huge difference to your investments over a long period.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” – Albert Einstein

How does compound investing work?

It’s all about time invested. Allowing small amounts of money to grow into large amounts over time, like a snowball effect.

One of the most important aspects of compounding is to start investing early. It is most effective when you allow any increases to build upon themselves over the long-term making it particularly beneficial for pensions and can help you to reach your retirement goals sooner.

Let’s see it in action…

Imagine you invest £1,000 into a pension at the start of every year, and your investments grow by 5% with dividends and interest paid yearly. After one year, you’ll earn £51. In the second year you’ll get 5% of £2,051 so you’ll earn £105, and your savings will be worth £2,156. Fast forward by 20 years and your savings are worth £35,188 compared with overall contributions of £20,000.

Value of investment with compounding

This is an example only, actual returns will vary depending on the investments you choose. These calculations don’t take into account charges or taxes. The value of investments can go down as well as up in value so you could get back less than invested.

Pension tax relief boost

Each time you add money to a pension you’ll also get a boost from the Government. The Government automatically adds 20% in tax relief on top of what you pay into a pension. This means a £1,000 contribution could effectively cost you £800.

If you are a higher or additional rate taxpayer, you could also claim back even more through your tax return.

How to benefit from compound investing

Beginning your investment journey can be daunting. To start compounding speak with one of our Independent Financial Advisers to ensure your portfolio is diversified and your investments are in line with your unique goals. Our advisers will help you to choose the right products to invest in, but also evaluate the right periods of time over which to invest, so that you can make the most of compound interest.

The earlier you start to compound, the better. Delaying investing by just a few years could have a dramatic effect on the amount you save.

Ready to start compound investing?

If you are ready to hear more about how compound Investing could work for your personal finances please get in-touch today. The earlier you start the sooner your money can benefit.

We offer a free, no obligation consultation, contact our team to book a meeting time that is convenient for you. Book your meeting here>> or call 01244347583  to speak to our team.


This article is not personal advice. If you are unsure what’s right for you, please seek personal financial advice. Pension and tax rules can change, and benefits depend on your circumstances.

Source: Hargreaves Lansdown

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