The earlier the better for compounding success in your Stocks & Shares ISA
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
A new tax year has dawned, which also means a fresh opportunity to do more with your money in a Stocks & Shares ISA.
Timing is everything. By investing as early as you can in the tax year, you are giving yourself the opportunity for greater potential returns. This is down to the magic of compounding, where you benefit from growth not just on your initial investment, but also on the growth of your investment. Think of this like a snowball building momentum as it is rolled through the snow, you are ultimately adding growth to growth.
Don’t wait until the end of the tax year to use as much of your £20,000 tax allowance as possible. Begin your growth and compounding journey today.
Here’s a simple example of how compounding works. You put £10,000 into an investment. In the first year, you make a 5 % return, giving you £10,500. In year two, you again make a 5% return, only this time it is on your initial investment and year one return, 5% of your £10,500, which is £525, giving you a total of £11,025. In year three, you again make a 5% return, this time on your £11,025, which means a £551.25 return, giving you a total £11576.25. Your initial investment and returns are fuelling more returns, in a continual compounding process which over the long term could have a significant impact on your overall wealth.
If you can’t use all your allowance up in one go, little and often investing could work for you. The same idea works, investing as much as you can, as early as you can, is going to give you the advantage of compounding growth over time. That’s why we say invest for the long term; not only does this help you to ride out fluctuations in the markets, it also enables you to fully benefit from the snowballing of compound growth.
Legendary investor Warren Buffett, one of the richest men in the world, has said of compounding “Over time, it is a simple concept that accomplishes extraordinary things.”
Remember, it pays to be patient. The earlier you invest, and the longer you are invested for, is more opportunity for compounding to build towards a bigger potential return. That doesn’t mean leave your investment alone completely, adding to your investment regularly is a way to fuel further growth and further compound returns.
Do more with your money. Use up your ISA allowance or top up your investment today.