The Power (And Limitations) of Financial Projections

“I had it totally wrong.”

These are the (paraphrased) words from one of our clients, we’ll call him Rafa.

“In my mind, I put so much more value on the £50,000 lump sum, but it’s actually the £500 every month that makes the real difference. It’s shocking, but in a good way.”

Rafa is talking about the Rosecut app. Specifically, he’s talking about the investment projections that we’ve built into it, alongside many other free tools and resources. Rafa had downloaded the app and was looking at what his investments might be worth in 20 years.

He had a £50,000 lump sum that he was looking to invest, but he also planned to add in a regular contribution every month. Compared to the £50,000, a regular monthly amount of £500 looks pretty modest. But the reality is that it is that smaller monthly amount that’s going to drive the bulk of his gains over a 20 year period.

Making even minor increases to regular contributions can add up to major differences to the end investment pot.

Let's go through this situation from the beginning. We’ll show you the difference that regular contributions can make, explain why, give you some context on how projections work, and what to consider when making them for yourself.

What are financial projections?

So you’ll surely understand the concept here, but let's quickly define what we’re talking about with this sort of projection. An investment projection is simply a forecast on what your investment portfolio will be worth at some point in the future.

There’s a couple of key factors to be aware of when you’re making these projections. The first is that you need to understand the tax position of the account you’re projecting. If all your funds are in an ISA, then you don’t have to worry because it’s tax free.

If they’re in a pension it gets a little more complicated, because you need to take into account tax relief on any contributions that are going in, and also keep in mind that withdrawals are potentially taxable down the line.

For other taxable accounts such as a general investment account or investment bonds, you again need to ensure that your projections are considering any tax implications.

Secondly, we’re talking about investment projections, rather than cash flow projections. If you’re looking for an estimate as to what a specific investment pot is going to be worth in the future, investment projections are a great tool for that job.

But if you’re trying to get an overview as to how much income you might be able to generate in retirement, or whether you can afford private school fees in ten years or whether you can afford to retire at age 50, you need more detailed cash flow projections.

These take into account all of your various sources of income, your assets and liabilities, pay rises, tax changes and even lump sum costs along the way. At Rosecut we can help with both of these, but for the sake of this article, we’re talking about investment projections.

How the numbers play out

Now let’s see what Rafa was talking about when he was creating his own investment projections in the Rosecut app. To do this, we’ll look at a couple of different scenarios. The first one has a larger lump sum and smaller regular contributions, the second has the opposite. 

Like Rafa, you might be surprised at the results.

Oh, and to keep things simple, we’re assuming this is invested in a tax free account.

Scenario 1: £100,000 lump sum - £500 per month

In the first scenario, Rafa contributions £500 per month after making his initial investment of £100,000. Assuming he increases his contributions each year to keep pace with inflation (more on this later), in 20 years time he’d end up with a portfolio worth:


Scenario 2: £50,000 lump sum - £1,000 per month

In this one, Rafa cuts a massive £50,000 from his lump sum and decides to blow it on a six month sabbatical instead. He feels bad about it though, so he commits to increasing his monthly contribution by an extra £500, hoping it might allow him to make up some ground to the first scenario. The result after 20 years?


That’s right, not only does Rafa make up some ground, but his portfolio is actually worth more, even though he’s cut his initial investment in half! 

It’s clear that the fuel that really drives long term results with an investment portfolio are the regular ongoing contributions. Even scraping together an extra few hundred each month can add up to massive increases down the line.

Of course, the best outcome is by doing both. Maximising your initial investment and your ongoing investment. If Rafa had invested the £100k upfront and £1,000 per month, his portfolio would be worth £919,656 in 20 years time.

Note that all of these figures don’t take into account inflation. This is key. Keep reading because we’re going to cover it further down.

All of these figures are also based on a 6% return on investment, after fees and charges. And this is really important, because getting the assumptions as accurate as possible is super important if you want your projections to resemble reality.

Speaking of which…

The importance of assumptions 

Any projection is based on assumptions. That’s because we don’t know what future returns are going to be. We don’t know what tax rates are going to be. And based on the last couple of years, we really don’t know what inflation rates are going to be.

What we can do is take a calculated guess based on decades of historical data. Of course, we have to remember the well trodden saying “past performance does not guarantee future results,” because it’s always possible that the future won’t match the past.

But until we’ve managed to crack time travel, it’s the best we’ve got.

When it comes to assumptions, there are some key details to understand, so that you can keep your projection figures in context.

Rate of return

This will obviously have a huge impact on the final number. Over the course of 20+ years, a single percentage point can mean tens of thousands of pounds difference in the end portfolio value. 

While you won’t likely be able to get the assumed rate exactly correct, it’s important that it aligns with your attitude to risk. If you’re a conservative investor, for example, assuming an 8% rate of return is going to give you a significantly overestimated figure.

When completing projections for our clients, we aim to be conservative with the assumed rates of return. After all, if you had expected a 5% return and you achieved 7%, it just means you’re able to retire sooner or with a larger pot.

If you’d assumed 7% and only achieved 5%, you’re setting yourself up for a pretty major disappointment.


As we all know, the government loves to tinker with the tax system. The likelihood that the tax regulations in place today will remain unchanged for the next 20 years is practically zero.

Really, there’s not much that you can do here other than use the current tax rules as they stand. However, this is one key area that highlights the importance of regular review of the projections.

You should revisit them on at least an annual basis, to make sure that the assumptions you’ve made reflect the current rules and regulations. (This is done automatically for you on the Rosecut app by the way.)


Don’t forget the fees! When you’re creating the assumptions for how much your investment returns might be, make sure that these figures are net of fees and charges.

So if you think you are likely to achieve an 8% gross (before fees and taxes) return, it may be that this reduces to 7% after fees are taken into account. You should make sure you include all fees that apply, including investment management, financial advice and flat account keeping fees.


We’ve saved the biggest, most important one until last. This is a major issue in the way financial education is covered, particularly on social media.

Have you seen those TikToks which show a 17 year old kid explaining how you can become a millionaire if you just invest £100 a month? All you have to do is get 9% return a year and do it for 45 years. Simple!

Technically yes, but this doesn’t take into account inflation. And that’s a pretty major detail to miss.

Using this example, if you invested £100 per month for 45 years (say age 20 to age 65) and achieved a 9% annual return, then your investment pot would be worth £1,034,115. Wow! You’re a millionaire!

Well, not quite. Because 45 years is a long time for rising prices. In real (inflation adjusted terms), that portfolio is going to be worth more like £428,000.

Still pretty good, but also less than half the nominal figure. This is vital for long term planning like retirement. Not taking into account inflation can totally throw out your figures and leave you with a nasty surprise as the date starts to get closer.

Wrapping up

So as you can see, the biggest drive on improving your long term wealth is regular, consistent contributions. While investment projections aren’t perfect, they can show you in broad terms how different strategies will impact your financial position in the future.

It’s important to keep in mind though, that they’re not perfect. 

You should understand the limitations of financial projections, so that you can interpret them correctly and use them to guide your strategic decisions. As always, at Rosecut we’re here to help with all of this.

If you’d like assistance with mapping out your own financial future, get in touch today.

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