Guide: The compounding effect: How it could boost or harm your finances

Published: May 8, 2025 by Jennifer Armstrong

When a 1920s ad referred to compound interest as “the eighth wonder of the world”, the quote was left unattributed. But that didn’t stop it from becoming synonymous with the celebrated physicist, Albert Einstein.

The link was likely intended to lend credibility to a statement that at first glance seems bold. And yet, compounding could be key to the success of your long-term financial plans.

As Einstein did or didn’t say, “He who understands it, earns it, he who doesn’t, pays it.” Whoever did say this, knew what they were talking about.

The compounding effect – essentially growth on growth that snowballs over time – can have an enormous impact on your finances. It can significantly increase the size of your savings and investments in the long term but, if not carefully managed and understood, it can also work against you.

This handy guide clearly explains how compounding works, and provides examples of how it might boost or harm your financial circumstances.

Download your copy here: “The compounding effect: How it could boost or harm your finances” to find out why compounding may be an essential part of your long-term financial plan.

Please get in touch if you’d like to speak to one of our team about how we could work with you.

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 


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