The value of investments and any income from them can fall and you may get back less than you invested.

Case Study: It pays to start early

Case Study: It pays to start early

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This case study shows why it pays to start saving as early as you can.

Starting in the thirties

Andrew invests £2,000 in a stocks and shares ISA when he is 30 and tops his ISA up with an extra £250 each month. If he continues with the same savings regime, and makes no withdrawals, by the time he reaches 65 he will have contributed £107,000. Assuming an average investment return of 4% per year net of charges, his ISA fund will be worth £236,000*.

Contributions: £107,000

Fund balance: £236,000

Beginning in the forties

If Andrew waits until he is 40 to start, and saves on the same basis, by his 65th birthday his contributions will amount to £77,000, which is £30,000 less than if he had started at 30. Assuming the same 4% annual return after charges, his fund would be worth £133,000 at 65*.

The result is more than £103,000 lower than the sum achieved by beginning 10 years earlier. This is because the Andrew who starts investing when he is 30 benefits from an extra decade of compound growth.

This complicated sounding process simply means that when you invest money you hopefully earn a return on your capital. The next year you earn a return on both your capital and the return from the first year. In the third year you earn a return on your capital and the first two years’ returns, and so on.

Contributions: £77,000

Fund balance: £133,000

Waiting until the fifties

Andrew leaves it until he is 50 to start saving. By the time he reaches 65 he has made contributions worth £47,000 (£60,000 less than if he had started at 30) and his ISA fund amounts to £65,000* (a whole £171,000 less).

If Andrew wanted to match the £236,000 sum he could have saved if he’d planned ahead, he would need to increase his monthly contributions to £945 a month*. His total contributions would amount to £172,100.

Contributions: £47,000

Fund balance: £65,000

 

 

*Source: Brewin Dolphin


 

The value of investments can fall and you may get back less than you invested.

Past performance is not a guide to future performance.

No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.

Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.

Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority.

 

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