We have all heard the phrase ‘Don’t work hard for your money, but rather let your money work hard for you’…but what does this actually mean?
By simply putting a regular saving away every month into the right product such as a Stocks & Shares ISA, your returns will exponentially grow over the long-term. This process is called Compounding.
Compounding will use an asset’s earnings, from either capital gains or interest, and reinvest these to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods.
To understand this better, the following article written by Tom Stevenson from Fidelity explains the power of Compounding.
