Example 1:

If you start with £10,000, add £300 per month, and earn an average return of 5% per year over 20 years, your estimated final balance would be approximately £140,000.

Over that period:

– Total contributions: £82,000
– Total growth from interest: approximately £58,000

This illustrates how regular contributions and compounding work together over time.

Example 2: The Cost of Delaying Contributions

Let’s look at two investors who both want to save for retirement at age 65, earning an average 6% return:

– Investor A starts at age 25, investing £200 a month for 10 years, and then stops completely. By age 65, her money has compounded to roughly £216,000.
– Investor B waits until age 35 to start. He also invests £200 a month, but he keeps investing it every single month for 30 years. By age 65, he has roughly £200,000.

Takeaway: Even though Investor B contributed three times as much of his own money, Investor A still ended up with more because her money had 10 extra years to compound. This highlights why starting early is often more important than how much you contribute.