Putting £300 a month into a SIPP (Self-Invested Personal Pension) for 50 years, while achieving 10% per annum, would result in a pot of money worth £5.2m. Of that, £180,000 would be the deposits. Interest earned would amount to £5m as the portfolio compounds over the years.
This is a simple explanation as to why I started a SIPP for my daughter when she born, to accompany her Junior ISA. And with £300 a month — £240 of family contributions and £60 of tax relief — we are maxing out the allowance for a junior.
Naturally, I hope she will start contributing herself when she starts working, so the contributions should rise after 20 years or so. In turn, this should mean the end figure is actually a lot larger than £5.2m.
In fact, if we assume that she will pay £1,000 a month into the SIPP (replacing the initial £300), and do so for the final 30 years, the end figure would rise to £6.7m. Of course, £1,000 a month might sound like a lot today, but it probably won’t be a huge contribution in two decades.
It’s all about compounding
Compounding is when we earn interest on our interest, or essentially our money makes more money as it grows. It’s like a snowball that gets larger with every roll and gather more snow the larger it gets.
And this is why it’s just so important to start sooner rather than later. Interestingly, if we were to extend the period of her paying £1,000 per month for another 10 years — meaning the entire portfolio would have 60 years to mature — she’d have £18.5m.
That’s simply how compounding works. The growth typically comes at the end. It’s one of the reasons Warren Buffett became so wealthy. It’s time. He’s been active for such a long period.
A self-compounder
Stocks and investment trusts that don’t pay a dividend or pay a very small one typically do the reinvestment themselves. One such opportunity is Scottish Mortgage Investment Trust (LSE:SMT).
Scottish Mortgage is a global growth-focused investment trust that invests in both public and private companies worldwide. It aims to maximise total return over the long term.
Its portfolio is concentrated and benchmark-agnostic, giving managers significant freedom to select high-conviction stocks.
Top holdings currently include SpaceX, MercadoLibre, Amazon, Meta Platforms, and TSMC. This reflects a strong tilt to sectors such as technology (over 23%) and consumer cyclicals (over 30%). The trust is known for backing innovation and structural shifts, particularly in fields like artificial intelligence and semiconductors.
In recent years, performance has been strong. The net asset value total return was 11.2% for the year to March 2025, compared to the FTSE All-World Index at 5.5%.
However, there are still risks. The trust has high exposure to volatile growth sectors and significant private company holdings, making it vulnerable to market swings and events like bankruptcies (e.g., the Northvolt write-off).
Investors should be comfortable with higher volatility and the potential for sharp drawdowns. However, it’s a core part of my portfolio and believe it’s worth of consideration by all long-term investors. It’s also an important part of my daughter’s SIPP and Junior ISA.
