Compounding: the slow glow-up

Lesson 4 of 12 in our free Investing Basics guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Investing Basics is free for everyone.

Questions you'll answer

Illustration: £1,000 grows at 5% a year, with growth reinvested, for 10 years. Roughly how much is it worth?

Rule of 72: divide 72 by the yearly growth rate to estimate how many years it takes to double. At 6% a year?

Fact: “Compounding works against you on debt too.” — Interest on interest makes unpaid debt grow — same maths, wrong direction.
Fact: “Starting earlier with smaller amounts can beat starting later with bigger amounts.” — More years = more compounding. Time is the secret ingredient.
Myth: “Compounding means investments go up every single year.” — Investments can fall in some years. Compounding just describes growth building on growth over time.