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Can pensions really grow on their own over time? Yes - and the reason is compound interest. It’s the quiet force that makes your pension grow not just from what you pay in, but from the returns your money earns along the way.
When you contribute to a pension, those payments are invested in things like shares, bonds, or funds (for example, you can invest your Compound pension in funds provided by BlackRock, Vanguard & HSBC). As those investments potentially earn returns, the earnings are reinvested back into your pot. That means your future growth comes from both your original contributions and the growth that’s already happened. It’s a bit like the snowball effect, and it’s known as compounding.
How compounding works in your pension
Each time your pension investments earn a return, those gains stay in the pot and start working for you too. Over months and years, this creates a loop of “growth on growth.” The longer you stay invested, the more noticeable that effect becomes.
For example, imagine two people each pay £200 a month into their pension. One starts at age 25, the other at 35. Even with the same contributions and returns, the person who started earlier could end up with a pot that’s tens of thousands of pounds larger, all thanks to having an extra decade for compounding to do its work.
Why time matters more than timing
Many people think growing their pension is about picking the right fund or waiting for the perfect market moment. But the truth is, time in the market usually matters more than timing the market. It’s a bit like planting a tree, you wouldn’t hunt for the perfect day of sunshine. The earlier you plant it, the more time it has to grow roots and branches. Standing around waiting for the weather to be perfect just means you end up with a smaller tree. Staying consistent with your contributions, and starting early, is the key.
Regular monthly investing also means you’re buying into the market at different prices (sometimes high, sometimes low) which helps smooth out the ups and downs over time.
When markets go down
Of course, markets don’t always go up in a straight line. There will be periods when your pension balance falls - that’s a normal part of investing. The key thing is to stay consistent. Regular contributions mean you’re buying at different prices, including during dips, which can set you up for stronger growth when markets recover. Think of it like a long hike - there are a few dips in the path, but the overall direction can still be uphill.
Make compounding work for you
You don’t need to do anything complex to benefit from compound growth, it happens naturally within your pension. What you can control is:
● Starting as early as possible
● Contributing regularly
● Keeping your money invested for the long term
It’s simple, but powerful. The sooner you start, the more time compounding has to do its thing. Compound helps you understand, track and grow your pension, all in one place, so you can sit back and watch compound interest do it’s thing.
Your capital is at risk. The value of your investments can go down as well as up, and you may get back less than you invest.
This content is for general information only and is not financial advice.
