The magic of compounding
Did you know that Einstein described compound returns as the eighth wonder of the world?
That’s because over the long term, the impact of compound returns can be so powerful it almost feels like magic.
So what are compound returns? Let’s start with an example.
Imagine you invested £5,000 and it grew by 7% that year. The next year, you’d have £5,350. So far so good?
At the end of the second year, your £5,000 would have grown to £5,725. So in year one, you made £350 return but in year two it rose to £375. Year two is higher because you made a return on your original investment AND a return on your return – otherwise known as compound return!
The longer you leave your money to work for you, the greater the impact of compound returns. After 25 years, your £5,000 would have grown to over £27,000! Behold the magic of compounding.
We hope you’ve enjoyed this quick introduction to compound returns. Be setting aside as much as you can today, you give your money the greatest change to benefit from the power of compounding.