The number looks too big to be real. £10,000 today — a single lump sum — plus £500 a month, tucked inside a Self-Invested Personal Pension (SIPP), compounding at 10% a year. Some 30 years later it’s £1,328,617.
It’s not a lottery win. It’s not inheritance. There’s no secret.
So how does it actually work?
Compounding for glory
The maths is simpler than it sounds. In the early years, not much seems to happen. Year one, the £10k earns roughly £1,330 in interest. Underwhelming. But here’s the thing — that interest doesn’t disappear. It gets added to the pot. Next year, the interest earns interest. The year after that, the same. Each time the snowball rolls, it picks up a little more snow.
By year 10, the annual interest generated is around £9,000. By year 20, closer to £24,000 — more than the £6,000 in contributions going in that year. By year 30, the pot is generating over £120,000 in a single year. The contributions become almost irrelevant. The compounding has taken over.
Of the £1.33m final figure, only £190,000 represents actual money paid in — the £10k lump sum plus £500 a month for 30 years. The remaining £1.14m? Pure compounding. Time doing the heavy lifting. This is why I think it’s so important that if parents can, they should start an ISA or SIPP for a child at birth. They’ve got so much compounding ahead.
The SIPP wrapper makes it even more powerful. Unlike the ISA, basic-rate taxpayers get 20% tax relief on contributions, meaning that £500 a month only costs £400 out of pocket. Higher-rate taxpayers can claim back more still.
The catch, of course, is patience. As we can see compounding is brutally slow at the start and almost unbelievably fast at the end. The investors who benefit most are the ones who start early and contribute consistently.
What’s more, not everyone achieves 10% per annum. At 5%, for instance, the returns would be significantly lower.
Where to invest?
This is the most important question. The above is great in theory, but we need to find the stocks to do the job.
One name catching my eye as a possible pick for a long-term SIPP portfolio is Marvell Technology (NASDAQ:MRVL), a chipmaker that’s the essential plumbing for the AI revolution. The headline valuation isn’t great, which sounds alarming. But dig a little deeper and there’s an interesting case to make.
The forward price-earnings-to-growth (PEG) ratio sits at just 0.73, against a sector median of 1.4 — a massive discount and one of the few metrics where Marvell looks genuinely cheap relative to peers. But it’s the one that matters the most to me. That suggests the market may not be fully pricing in the company’s growth potential.
The risk? Marvell is heavily dependent on a small number of hyperscaler customers — Amazon, Microsoft, Google — for the bulk of its custom AI chip revenue. If any one of those relationships sours, or a hyperscaler decides to bring chip design fully in-house, the revenue hit could be severe.
Yet for patient SIPP investors with a 30-year horizon, I feel it’s well worth considering.
