25 years after the turn of the millennium, and the world has changed significantly.

In the year 2000, no one could have predicted the future ubiquity of smartphones or social media, and the concept of a functioning AI beyond a rudimentary computer interface remained in the realm of science fiction.

However, despite the considerable upheavals in technology, politics, and culture, many of your long-term financial goals have likely remained broadly consistent. For instance, if you were working in 2000 and still are today, your projected retirement date is probably roughly the same as it was 25 years ago.

While the world has changed dramatically over that time, the principles of long-term financial planning remain the same.

So, as we reach this quarter-century milestone, it’s an ideal time to reflect on how your long-term investments may have performed during the transformative years between now and the turn of the millennium – and how compounding returns could have boosted your wealth.

Read on to find out how compounding works and how much your investments could have grown over the last 25 years.

Compounding returns grow exponentially and can surpass your total investment

Compounding is a powerful force in investing that allows you to generate returns not only on your initial investment but also on the gains accumulated over time.

This snowball effect can significantly boost your wealth in the long term, and you may even reach the “compound investment tipping point” – the moment your investment returns exceed your total contributions.

For example, if you invest £10,000 with an average annual return of 5%, your investment would grow to £10,500 after one year. The following year, the 5% return would apply to both the initial £10,000 and the £500 gain, bringing the total to £11,025.

Though the early gains may seem modest, the effects compound over time, creating exponential growth. Indeed, with a 5% average return, a £10,000 passive investment would double in just over 13 years, meaning your total returns would equal your initial investment.

The FTSE 100 has averaged just over 5% growth since 2000

Data from Curvo shows that between April 2000 and January 2025, the FTSE 100 Index saw an average compound annual growth rate of 5.01%.

The graph below shows the growth of £10,000 on the FTSE 100 between those dates.

Source: Curvo

As you can see, the average £10,000 investment would have grown to £33,501 by January 2025.

For comparison, the Bank of England’s inflation calculator shows that £10,000 in 2000 would be worth £18,628.63 today, meaning the market has comfortably outpaced inflation.

Moreover, you would have reached the compound investment tipping point by early 2017. While market fluctuations caused by the downturn during the pandemic briefly brought returns below this threshold, they rebounded by the end of 2020.

Smaller contributions can also benefit from compounding over long time horizons

Compounding isn’t just effective for lump-sum, passive investments, it can also boost long-term growth through smaller, regular contributions.

For instance, let’s say you invested £250 on the FTSE 100 every month since 2000 and achieved the same 5% average return. After the first year, your initial £3,000 in contributions would have generated just £83 in returns.

However, after 10 years, your total contributions of £30,000 would have grown to £38,982, with nearly 25% of your wealth coming from investment returns. By the 25th year, you would have invested £75,000, and your investment returns – now worth £74,498 – would be on the verge of surpassing your total contributions.

Then, in year 26, your total contributions of £78,000 would generate an additional £82,229. This means your returns alone would exceed your total investment, and you would have reached the compound investment tipping point.

So, had you started investing £250 a month in the FTSE 100 in 2000, you would now likely either have reached or be a few months from reaching this crucial milestone.

The table below shows the effects of compounding in this example.

Source: Nutmeg

A financial planner can help you benefit from the power of long-term compounding returns

While investment returns are never guaranteed, a financial planner can help you optimise your portfolio and increase your chances of reaching the compound investment tipping point.

They can tailor your investments to align with your financial goals and risk tolerance. They can also work with you to diversify your portfolio, helping you achieve steady and consistent progress toward your objectives.

Additionally, a financial planner can help you adjust your strategy as needed to navigate market fluctuations, ensuring your investments continue to deliver over the long term.

To speak to a financial planner, get in touch.

Email info@blueskyifas.co.uk or call us on 01189 876655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.