The month the portfolio out-earns you
There is a balance at which an investment starts adding more each year than its owner does. For someone investing £500 a month at 5% real, it sits at about £120,000: 5% of £120,000 is £6,000, exactly the £500 a month going in. Below that line your contributions are the engine and growth is a passenger. Above it the roles swap, and every new pound of growth arrives whether you saved that month or not.
That crossover is what compounding means in practice, and it is why this calculator splits the final balance into what you contributed and what growth added, rather than showing one undifferentiated total. Reading that split is a short guide of its own, mostly because the return you type into it deserves more argument than it usually gets.
The 5% matters as much as the £500, so choose it with care. Every figure here is in today's money, which spares you any mental inflation adjustment but obliges you to enter a real, after-inflation return, not a headline nominal one; the Bank of England's inflation calculator makes vivid how far the two drift apart over an investing lifetime. For long-horizon equity investing, 4–6% real is a defensible range, and the record behind ranges like it is public: NYU Stern's historical returns dataset tracks stocks, bonds and bills back to 1928. Higher figures usually come from quoting nominal returns during unusually strong periods. If unsure, use 4% and treat more as upside. Nothing is deducted for fees, either, and fees compound too, in the wrong direction; the fee calculator shows what a percentage point costs over these timeframes. One mechanical detail you can stop worrying about: compounding here is monthly, using the twelfth root of the annual rate, so a 5% assumption stays exactly 5% a year. Dividing by twelve, as many calculators do, quietly inflates it to 5.12%.
The decade that costs £334,000 to skip
Compounding is not a steady climb. It is a curve that steepens, and the same £500 a month at 5% real shows how much:
| Years | Contributed | Balance | Growth share |
|---|---|---|---|
| 10 | £60,000 | £77,200 | 22% |
| 20 | £120,000 | £202,900 | 41% |
| 30 | £180,000 | £407,700 | 56% |
| 40 | £240,000 | £741,300 | 68% |
The first decade adds £77,200. The fourth adds £334,000, from identical contributions. Starting early therefore beats saving harder later by a wide margin, because the early money is the only money that gets to compound for the full period. Delay ten years and you have not lost ten years of contributions; you have lost the last decade of the curve, the expensive one.
No market delivers that curve smoothly, of course. Returns arrive in lumps, and while you are accumulating, the lumps mostly average out. Compounding never stops mattering, but it stops being the main factor once withdrawals begin: from that point the order your returns arrive in matters as much as their average, which is a different problem entirely and the reason the Monte Carlo simulator exists as its own tool rather than a footnote here.
Aaron, Bea and a £404,000 head start
Aaron is 27, has £10,000, and invests £500 a month at 5% real. By 47, twenty years in, he holds £229,400, of which £99,400 is growth. By 57 it is £450,900, with growth accounting for £260,900. By 67 he has £811,700, and growth has supplied £561,700 of it, comfortably more than everything he ever paid in.
His friend Bea starts at 37 with the same £500 a month and no starting balance. By 67 she has £407,700. Aaron ends with nearly double, having contributed only £70,000 more. The ten-year head start is worth roughly £404,000, more than five times the extra he put in.
Both projections hold contributions flat for the whole run, which almost nobody actually does. Most people raise theirs across a career, and every increase shifts the curve upward, so treat these figures as a floor for anyone whose income is still climbing. Tax is left out entirely too, on growth and on withdrawals alike.
And the curve has a dark twin. The same maths runs in reverse on borrowed money, which is why high-interest debt is so punishing: there, the lender is the one collecting the crossover. The debt payoff planner models that side properly, including minimum payments.