How Little Investments Can Grow Big

Let’s debunk a common myth: the belief that entering the world of investing requires a hefty initial investment. It’s a tale that has deterred many from starting their investment journey in the UK. But the truth is, the strength of investing doesn’t come from the size of your initial deposit but from the consistency of your efforts and the power of starting early.

Imagine two friends, Lucy and Ethan. Lucy, who has climbed the career ladder successfully, decides it’s time to start investing at the age of 35. She subscribes to the idea that bigger is better and chooses to save until she can invest a large, one-time sum—£20,000. Ethan, earning a more modest salary, opts for a different approach. At the age of 25, he begins investing £200 each month, a manageable sum that doesn’t strain his finances. He understands the importance of starting young, taking advantage of the additional compounding years that will magnify the impact of his investments significantly by the time he retires.

After 20 years, which for both is by the age of 45, let’s look at where they stand. Ethan, who invested £200 monthly at an average annual return of 5%, compounded monthly, would have contributed a total of £48,000. Thanks to the power of compounding, his investment would have grown to £81,691 Lucy, starting ten years later at the age of 35, invests her lump sum of £20,000. Compounded annually at the same 5% rate, her investment grows to about £32,577 after 10 years*.

Clearly, Ethan’s approach of starting earlier and investing consistently not only simplifies the investment process but also maximises the benefits of compounding. Each pound Ethan invested had more time to grow, significantly boosting the size of his investment pot compared to Lucy’s, whose single, later-life investment couldn’t catch up despite its larger initial size.

The lesson here is clear: You don’t need a fortune to start building one. You just need to begin, and then keep going. The investment world isn’t just for the wealthy; it’s accessible to anyone willing to start small and stay consistent. Investing a little and often makes use of time—one of the most powerful allies in wealth accumulation.

Starting with small amounts also reduces the psychological barrier to investing. The fear of significant losses can stop many potential investors in their tracks. However, risking a smaller amount monthly lessens this fear, fostering a more comfortable and sustainable investment habit.

So, if you’ve been holding back because you believe you don’t have enough to start investing, think again. Whether it’s £150 a month or £1500 a month, consistent investing over time can lead to substantial growth. It’s not about the magnitude of your funds but the regularity and duration of your investment. In the realm of investing, slow and steady does win the race. Start small, think big—let time and compounding work their magic. Remember, in the journey to financial growth, persistence is key.

Don’t wait for the perfect moment; the best time to start was yesterday, but now isn’t bad either. Take that first step today and begin securing your financial future. Your future self will thank you.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up.  You may get back less than you invested.

*The figures included are examples only and they are not guaranteed – they are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this. Drip feeding your investment does not guarantee you a higher return than making a one-off payment. These figures do not allow for inflation.

Gilson Gray Financial Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website https://www.sjp.co.uk/products. *The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

SJP Approved 08/08/2024

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