Saving & investing
Time and compounding: separate deposits from growth
See what time changes in an illustration, including zero and negative returns.
The key idea
Compounding means a later return applies to a balance that includes earlier gains or losses. Contributions also increase a balance, but they are money you add, not investment growth. More time does not guarantee recovery from a loss.
Give each goal a date
A time horizon is the period before money is needed. A tuition payment next year and retirement decades away need different access plans. A job loss or change in family needs can shorten the horizon. Having time on paper is different from being able to leave money invested. OSC Investor Office: why risk matters
Show the contribution timing
A deposit at the start of a year can earn that whole year’s assumed return; one at the end cannot. Monthly models also need a stated convention. Do not compare tools without checking whether an annual input is divided by twelve or converted to an effective monthly rate.
A smooth curve is a model choice
A constant positive assumed return makes later gains larger as the balance grows. Actual investments can lose value, have uneven results or become unavailable. Two displayed rates do not describe all possible outcomes. Match the holding and access needs to the goal; do not assume time cancels risk. FCAC: basics of investing
See it in practice
Two years, with annual deposits
| Assumed annual return | End year 1 | End year 2 | Growth/loss beyond $1,200 put in |
|---|---|---|---|
| 5% | $1,150 | $1,307.50 | +$107.50 |
| 0% | $1,100 | $1,200 | $0 |
| −5% | $1,050 | $1,097.50 | −$102.50 |
At 5%: $1,000 × 1.05 + $100 = $1,150; then $1,150 × 1.05 + $100 = $1,307.50. Starting money is $1,000 and new contributions total $200. Annual compounding, year-end deposits, no withdrawals, fees, personal tax or inflation; cents are exact here. These are sensitivity illustrations, not probabilities.
Check your understanding
Is the $307.50 increase in the 5% example all growth?
No. $200 came from new deposits; $107.50 is the hypothetical growth. Separate both from the starting $1,000.
A useful next step
Write a date beside each saving goal. For a monthly illustration use TFSA Growth, noting its annual-rate/12 and month-end contribution convention. It excludes withdrawal/room checks, fees and inflation and does not cover every loss scenario.
Inspect the sources
Primary references checked September 18, 2026. A source check is not professional financial or legal review.
- OSC Investor Office: why risk mattersConceptual; updated January 2026 · Ontario regulator educational resource; general investment concepts
- FCAC: basics of investingConceptual; checked 2026 · Canada; provincial securities regulation