17th July 2016
How To Boost Your Pension With Compound Interest
How To Harness The Power of Compound Returns To Boost The Value Of Your Savings, Pensions & Investments.
Einstein called compound interest the ‘8th wonder of the world – The greatest mathematical discovery of all time.’
Compounding is the process whereby money earned from investments builds upon itself over a period of time. Earning a slightly higher interest rate can make a big difference to the amount of money you end up with.
For example, in the first year you earn some interest on your savings. Then the second year you earn interest on your interest. Then in the third year you earn interest on the interest on the interest and so on.
If you put £100 in a biscuit tin each month for 30 years, at the end you’ll have £36,000.
Put it into savings or investments, let the power of compound returns work for you and you’ll have £58,273 (based on a 3% interest rate)
Compound returns are driven by two things: rate of return and time.
Rate of return
This determines how quickly and how much your sum of money grows.
The higher the rate, the more your money will grow and at a faster pace. Even small differences in the rate of return have a big impact on the amount earned in later years.
For example, £100 per month invested over 30 years will result in £25,000 more at a saving rate of 5% rather than 3%. (Ignoring inflation for simplicity.)
A good investment strategy can provide even greater returns. If you can afford to put a few hundred pounds away each month, then this can generate some serious amounts of money over time.
Another important factor is how long your money has to build. The sooner you start to save, the longer your money will have to grow. However it is never too late to start saving and late investors can still have success given the right saving strategy.
As much as you can afford. Small sums soon build up to bigger sums and you can review how much you can afford as time goes on.
The important thing is to start as soon as possible and to invest steadily in order to get compound growth working for you.
Please note that the value of an investment can fall as well as rise and you may get back less money than you put in.