Why compounding rewards patience
Each yearโs growth earns its own growth the next year. Over decades this snowballs, which is why a Stocks & Shares ISA or pension started early can outgrow much larger contributions made later.
Real returns and inflation
The return you enter is a nominal figure. With UK inflation around 2โ3%, a 5% nominal return is closer to a 2โ3% real return in todayโs spending power. For a long-term plan itโs worth running both an optimistic and a cautious rate to see the range, rather than trusting a single number.
ISA vs taxable: why the wrapper matters
Inside a Stocks & Shares ISA, growth and withdrawals are free of UK income and capital gains tax, so the full compounded amount is yours. In a regular taxable account the same growth can be reduced by dividend and capital gains tax, which quietly slows the compounding โ one reason to fill the ยฃ20,000 annual ISA allowance first.