Investing can be a scary thing but with the help of a financial advisor it can be a fruitful experience.

Many people have the idea that investing is risky which is understandable as the value of investments and the income they produce can fall as well as rise and you may get back less than you invested.

You might also think that bank accounts are safe, and they are, but the value of your money does not increase significantly and often below the rate of inflation. That is a risk in itself. 

Investing has many benefits but one key benefit which is often overlooked is the effect of compounding. The compound effect allows your money to grow at a faster rate by leaving the income invested. Below is an example demonstrating the effect.

-       If you invest £100,000 and it returns 5% income after the first year, you will see £5000 added to your investment pot.

-       In the second year as well as earning returns on your original £100,000, you also earn on the £5000 growth.

-       Should the rate of return remain at 5%, your investment of £105,000 would grow by £5,250 of income the next year giving a total of £110,250.

-       In subsequent years, the same formula applies.

If the return rate stayed at 5%, in 15 years the £100,000 originally invested would become £207,892.82 as a result of compounding. If however compounding was not used the £100,000 originally invested would become £175,000, therefore you would be £32,892.82 worse off compared to the compounding.

 A quick and rough way to show how compounding can work for you is using the rule of 72. Divide 72 by the annual income/interest rate to get the number of years it should take to double your money. So for this instance, 72 divided by 5 is 14.4 years so roughly 15 years.