Utilising compound interest at 24

Dunney77

Hey all,

I am a 24 year old who currently has £5000 sitting in a savings account. I am expecting £30,000 next month and want to know what to do with the £35,000 total.

I have often heard of compound interest being amazing for young people who start the process of compound saving early (my age).

How would I go about this process? Not sure where I can find a decent interest/dividend rate for the long term to really make a big difference. Examples on the internet often quote 7% but I can't find something which can provide a rate like that longterm!

Any advice?

Archi_Bald

Apart from making huge amounts of interest, what are your plans for the money? Do you need any for a house sometime soon, and if so, when, and how much do you need for that? Do you have a pension? Do you have an emergency cash fund? How many years could put the money away?

Dunney77

Archi_Bald wrote: »

Apart from making huge amounts of interest, what are your plans for the money? Do you need any for a house sometime soon, and if so, when, and how much do you need for that? Do you have a pension? Do you have an emergency cash fund? How many years could put the money away?

Well, it is an inheritance from my father. He had his money in premium bonds and now the year is coming to an end where they have to be transferred out of his name.

My plans with that cash, nothing. It was never my intention to receive it at 24 so I want to treat it as such by putting it away and letting it grow.

With regards to a mortgage deposit, that will be sorted by other means.

I am aiming for 25-30 years. Would putting the lump sum in a Vanguard Lifestrategy 80 fund and putting in £200 a month be a good idea?

TheTracker

Most long term balanced portfolio return forecasts are circa 5% above inflation which long term is forecast at about 2%. It's important to factor in inflation and not count it in goals.

You could grow your money from £5k to £17k in today's terms over 25 years. Whether you want to or not is a personal decision. At 24 I decided not to and am 100% happy with the decision I made. I made better use of £5k at age 25 than I would have made use of £17k at age 40. Others make other decisions.

Thrugelmir

There's no secret in compounding. Historically around 60% of the return in investing in shares comes from reinvesting the dividend income. Pick the right companies and the dividends will grow over the years. The younger you start the better chance you have of obtaining a sizable pot in the years to come.

Don't expect compounding to do all the heavy lifting either. What you contribute ultimately also makes the difference. The earlier the better.

Dunney77

Well - I was thinking the Vanguard LifeStrategy 80 and then deposit monthly on a platform with no trading costs.

There might be better funds with better annual average return?

bowlhead99

Dunney77 wrote: »

There might be better funds with better annual average return?

Of course. That's quite likely, if you have a timeframe several decades long.

atush

S&S isa. Vanguard is fine.

then think about a pension if you have other emergency cash set aside. Or put the balance into a current acct or monthly saver with a view to investing it into next years isa allowance

inflationbuster

Plenty of stocks on the FTSE100 or FTSE250 offering good dividends for compounding.

colsten

inflationbuster wrote: »

Plenty of stocks on the FTSE100 or FTSE250 offering good dividends for compounding.

Picking individual companies is a lot more risky than choosing one or more funds. I would never pick an FTSE100 tracking fund though, and an FTSE250 tracker is only "may be".

VLS 80 seems a good choice to me if the investment horizon is 10-15+ years.

Dunney77

colsten wrote: »

Picking individual companies is a lot more risky than choosing one or more funds. I would never pick an FTSE100 tracking fund though, and an FTSE250 tracker is only "may be".

VLS 80 seems a good choice to me if the investment horizon is 10-15+ years.

Which fund would be best for compounding at a decent rate over the next 20 years? Was thinking of adding monthly sums and having these amounts increase as I earn more