How Does Compounding Impact My Investments?
Compounding can make a huge difference to your investments long term. What is compounding and how can it impact your investments?
Compounding is the ability of an asset to generate earnings, which are then reinvested or remain invested with the goal of generating their own earnings. Essentially compounding means generating earnings from previous earnings.
Compounding works best when started early. This means that you have as much time as possible to allow compounding to work and make as much money as possible.
Let’s give you an example. Let’s say Chris, aged 20, invested £1,000 in 1971. If he didn’t touch it until he retired today aged 70, his money would have increased by 119 times - meaning he would have around £119,000.
If Chris waited another 10 years to invest that £1,000 when he was 30 and left it until retirement, he would only end up with around £75,000. If he waited until he was 40 then he would be left with, about £18,000.
Here’s where it gets really exciting. Let’s say that Chris invests that £1,000 at age 20 AND contributes £50 a month until retirement, by the age of 70 he’d have over £1million. Don’t feel like you have to contribute a load of money each month, you can just contribute whatever you feel comfortable with! But it pays to start early!
It’s important to note that compounding only works to full effect if the investment is untouched, meaning that you aren’t withdrawing the profits. If you are withdrawing the profits for income, you will be drawing out the interest regularly which means it won’t compound effectively.
How can Schofield help me grow my investments?
Schofield Money won’t only help you choose the right products to invest in, but also work out the right periods of time over which to invest meaning you can make the most of compound growth. Professional financial advice pays dividends as working all of this out without support can be challenging as it depends on your own investment goals and overall plans in the long term.
If you’re looking for independent financial advice for your investment needs, support with re-balancing your investments or quality-controlled investment, speak to one of our chartered financial planners today (Link to https://www.schofield.money/contact-us).
The value of an investment with Schofield Money Ltd is directly tied to funds selected, as a result, the value can fall as well as rise, you may get back less than originally invested. Past performance is not a guide to future returns.
This article is for information purposes only. It does not constitute any financial or investment advice. Please contact us if you wish to proceed with any course of action suggested in this article.