In the first year of investing, you may generate returns on your initial investment, while in the second year, you invest the capital (your initial investment) plus the returns to generate further returns on the total. Reinvesting any returns on your returns means your money can enjoy exponential growth. Of course, investing is subject to market ups and downs, and there’s a risk you’ll lose some of the money you’ve put in. However, by investing over a long timeframe, you give your investment time to make up for any losses.

For example, £100 invested with an expected return of 10% will generate £10 in the first year, £11 the second year and £12.1 the third year. The initial £100 will always generate a return of £10, but starting from the second year, you will generate an extra £1 from your past gains, and an extra £2.1 the third year. Hence, returns on returns.

Our handy calculator works on a monthly compounding period, and calculates your total returns based on your return rate period and timeframe in years. Your results are based on the assumption that any returns, including dividends, are reinvested and any monthly contributions are maintained.

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