Compound returns


#1

We’ve just written up a post on compounding and its effects on your portfolio.

Including a snazzy compound return calculator here.


#2

Nice!

To do this “Just plug in the annual return you’re targeting, the initial money you’ll invest and the money you’ll add to your portfolio per year” you’ll either need to make your own copy of the spreadsheet (or Toby will need to give everyone write permission :slight_smile: )

Inflation will drag on those returns in the same way that broker X’s fees will. The 149,744 will feel like less in 40 years, unless we’re putting inflation-adjusted interest rates in :balloon:

Don’t expect your actual portfolio to behave like that, a smooth line curving upwards. :chart_with_upwards_trend::chart_with_downwards_trend::chart_with_upwards_trend:

Most investors experience less of a snowball effect than these charts suggest because when their investment horizon is 40y they earn less and have less cash to put to work, so they may need to put more cash to work in their later higher-earning years. :frowning:

… Some of those might be small caveats worth adding to the post, but none of them diminish your main point: if you want the invested money to do some of the work for you, the best time to start investing is always as early as possible. :+1:


#3

Great points @rod. I’d say duplicate the sheet - or one person’s tweaking could confuse everyone.

We actually considered adding an inflation adjusted sheet in there, but chose not to because:

a) It adds a layer of complexity
b) Inflation rate is never a sure thing, especially in the UK right now :sweat_smile:, so it would have to be another variable


#4

Maybe a simple proxy for inflation-adjusted interest rate/stock market return would be setting the default % in the spreadsheet to 1.04 rather than 1.07 :slight_smile:


(Giridhar Tammana) #5

The spreadsheet does show power of compounding and long-term investing.

I think it need more clarification on the 0.45% fees at least some example (I’m guessing this particular one is for ETF). And also how can one achieve 0% fees with Freetrade? Some example would be great.


#6

0% fees is in reference to the fact that we don’t charge any custody fees. Many brokers charge an annual % fee on the assets you hold with them - we don’t. It’s not a fee going to the fund - it goes to the broker.

To invest without paying a penny in fees with Freetrade, you could use a Basic account and only Basic orders.

With our ISA, in April when we start charging, you’d pay a flat £3/month fee. Your fee would never grow as your portfolio grows.