![]() ![]() I’m pretty sure you’ll be impressed with the end figure. Go back into the calculator and put an affordable monthly amount for 20 years with an annual interest rate of 11%. I chose 11% because that’s roughly how much the global stock market has risen each year when looking back over the past 50 years. For example, I have a 20-year time horizon, so I put in my monthly amounts with an average annual interest rate of 11%. ![]() I use the tool above to plan out my future investment strategy. Here have a go yourself on our calculator for compound interest – CLICK HERE. You will have £1,019,000 in your account with £843,000 in interest from your investments. We put £500 to start and £400 monthly every month for 25 years with 12.5% on average over that timeframe ( 12.5% is the average amount the S&P500 index rises on average per annum). Let’s step it up a bit on making millions for the following example, as we all want to know how long it takes to make a million pounds. Sometimes I wish I had known about this in my early teens as, by now, I would have been a multi-millionaire! Your money is quite literally growing on top of itself. ![]() This is because the interest grows year on year and eventually outweighs initial deposits hugely. For the first few years, the amount you deposit increases at a minimal rate each year, but after a few years, you see considerable increases in the interest growth. Seeing it for the first time opened my eyes to investing for the long term. How amazing is that? See you on the beach. You would have £337,000 in your account, with a whopping £250,000 from the interest. You then put £200 every month for 25 years with average YoY growth of 10%, not forgetting to increase the amounts with yearly inflation (3% in this case). You put in £200 to start with on a range of stocks like Amazon, Apple, Netflix and Google. Over year one, you would earn 10% on average on your first month plus the interest accrued from adding £100 in month two, month three, month four and beyond.Įach month you’re adding to your pot adds to your claim, which accumulates much more significant returns over time. The beauty of this is when you up the frequency by adding an amount every month, so to keep it simple, let’s say £100 per month. Nice right?īUT next year, we would make £11 on our £110 ( 10% of £110 = £121) and then in year three, we would make £12.10 on our £121 (10% of £121 = £133.10).įinally, see what’s going on here? We’re compounding the growth on our interest! A compounding period can be calculated by hours, days, months or years, depending on the speed of investment.įor example, if we invested £100 with an average YoY return of 10% in year one, we would make £110 with £10 coming from the interest. The result, if done right, is a giant ball of cash.Ĭompound interest is calculated by multiplying the initial amount you invest plus the annual rate of interest. Think of a snowball effect rolling down a hill, your regular investment is the snow that grows, and the rolling product is time. ![]() If you’re reading this hoping to make a fast buck, save yourself the time and maybe don’t continue reading.Ĭompound interest only gets going after a few years of solid investing. Without time it simply won’t work, and the longer you have, the harder it works for you. Once mastered, you can turn a small but regular investment into a fortune using this simple formula.Ĭompound interest requires one thing, and that’s time. We’ll show you straightforward and concise examples that’ll give you an insight into this beautiful thing. Now the first time we read this, our initial response how does that work? And you might be thinking the same, but in this blog post, we’ll break down compound interest and its benefits. It results from reinvesting interest rather than spending it so that the interest compounds and grows over time. How Investing £150 A Month Can Change Your LifeĬompound interest refers to the principle that when you save money and earn interest on the savings, you also make interest on the interest itself.How Much Do I Need In My Emergency Fund. ![]()
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