Table of Contents
Introduction
For many young people, investing might seem like a distant and overwhelming concept. The idea of putting money aside for something that could happen decades down the road feels abstract, especially when life today is full of other priorities. But what if I told you that investing can help you reach real, tangible goals—like taking a dream vacation, upgrading your car, buying a house, or even retiring early? This blog will break down how investing can turn a small amount of money into something meaningful at different stages of your life.
The Importance of Starting Early
Why investing matters: Investing allows your money to grow over time, thanks to a powerful concept called compound interest. The earlier you start, the more time your money has to grow. But for younger generations, the benefit of investing may seem too far off to feel important right now.
Why younger generations hesitate: Many young people focus on immediate needs, like saving for travel, or even just having a good social life. We get it, having fun is important and the idea of saving for retirement or a big purchase feels like something for “future you” to worry about. But the key is understanding that the earlier you start, makes a great difference. 10 Minutes today, can change your life forever.
The power of consistency: You don’t need to be a financial expert or have a large sum of money to start investing. Even a small start can grow into something significant. Let’s see how investing just $5,000 today can lead to real results over the years.
The Power of Compound Growth
What is compounding? Compounding is when your investment earns returns, and those returns are reinvested, allowing you to earn returns on your returns. Over time, this creates the magical effect of exponential growth. It’s typical that we can only imagine things linearily, therefore we aim to showcase that small but early steps can make a huge difference.
Practical example: CHF 5’000 invested at 7% per year: We’ll follow this investment over 5, 10, 20, and 40 years to see how it grows. And we’ll tie this growth to tangible, real-life outcomes to make it more relatable. You may ask, why 7%? That’s the average return equities have generated in CHF.
Year-by-Year Breakdown: From Vacations to Passive Income
After 5 Years: The Vacation Fund
- CHF 5’000 at 7%: After five years, your investment would grow to around CHF 7’013.
- Tangible result: This amount is enough to cover a memorable trip abroad. Picture yourself lounging on a beach in Bali or exploring the streets of Sydney, all paid for by your investment.
- Why this matters: In just a few years, your money has worked for you, turning into a well-earned break. This early win helps you see the power of investing in action.
After 10 Years: The Family Car
- CHF 5’000 at 7%: After ten years, your investment would grow to approximately CHF 9’836.
- Tangible result: Family planning? This could be a sizable part of a down payment for a family car. Your investment now will help you provide for your family with peace of mind.
- Why this matters: The fact that your money has almost doubled shows how steady growth can lead to sensible purchases – without incurring debt or straining your finances.
After 20 Years: Studying
- CHF 5’000 at 7%: By year 20, your investment would grow to around CHF 19’348.
- Tangible result: Imagine, as parents-to-be, you invest 5,000 francs for your children at birth. If they were 20 years old and decided to study full-time, you could already finance half of their studies.
- Why this matters: Unfortunately, financial constraints can still influence the decision to pursue education. By starting early, for example with our Göttikonto, you can create opportunities that truly transform the life of your kids.
After 40 Years: Passive Income & Financial Freedom
- CHF 5’000 at 7%: By the time 40 years have passed, your initial investment would grow to around CHF 74’872.85.
- Tangible result: At this stage, your investment is generating passive income. Following the 5% withdrawal rule, you could take out around CHF 3,750 per year. This would cover a two-week vacation annually, without touching your capital. Alternatively, based on the average income of CHF 6,500, it could allow you to retire about a year earlier.
- Why this matters: At this stage, your money is working for you. You’re not just saving for a distant retirement; you’re creating financial independence, which gives you freedom and flexibility in how you live your life.
Practical Steps to Get Started
- Start small but start now: Even if you only have a few hundred Franks, begin investing now. The earlier you start, the longer your money has to grow.
- Choose your investment vehicle: Look into solutions like our Sparplan. This allows you to start without much hassle because we all know you have other important things to do.
- Automate your investments: Set up automatic contributions to your investment account. This makes investing a habit without requiring much effort. You’ll be surprised at how quickly your account grows when you invest consistently. If you invest an additional CHF 100 each month on top of the CHF 5,000, this will give you a return:
- After 5 Years: CHF 19’348 vs. 7’013
- After 10 Years: CHF 27’038 vs. 9’836
- After 20 Years: CHF 70’389 vs. 19’348
- After 40 Years: CHF 323’424 vs. 74’872.85
- Be patient: The true power of investing is seen over time. Don’t panic during market fluctuations. Remember, the longer you leave your money invested, the more you benefit from compounding.
arvy’s takeaway: Think About Your Future Self
Investing might feel like it’s only for the wealthy or the financially savvy, but the truth is, it’s accessible to anyone willing to start. By investing early and letting your money compound over time, you can turn even modest amounts into something that makes a tangible difference in your life. Whether it’s funding a dream vacation, upgrading your car, buying a house, or securing financial independence, investing allows you to reach these milestones with less stress.
So, think about your future self. What do you want your life to look like in 5, 10, 20, or 40 years? By starting today, you’re setting yourself up for a future that’s filled with possibilities—and all it takes is making your money work for you.
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