Surava Capital
What compounding actually is
Compounding means your returns start earning returns of their own. If you invest CHF 1'000 and it grows 6% in a year, you have CHF 1'060. The next year, the 6% is calculated on CHF 1'060, not on your original CHF 1'000. Each year the base gets a little bigger, so the growth gets a little bigger too.
In the first years this effect is barely visible. After a few decades it does most of the work. That is why the most important input is not how much you invest, but how long your money stays invested.
18 versus 25: seven years that matter a lot
Take two people. Both invest CHF 200 every month until they turn 65, and both earn the same assumed average return of 6% per year. The only difference: one starts at 18, the other at 25.
The person who started at 18 ends up with about CHF 594'000. The person who started at 25 ends up with about CHF 382'000. The early starter paid in only CHF 16'800 more, yet finishes roughly CHF 213'000 ahead. Those seven early years are worth more at 65 than anything else in the plan, because they have the longest time to grow.
Look at it the other way: of the early starter's CHF 594'000, only CHF 112'800 is money they actually paid in. The other four fifths are growth.
You don't need CHF 200 a month
The numbers above can look out of reach for a student or an apprentice. They are not the point. Even CHF 50 a month from age 18, under the same assumptions, grows to roughly CHF 148'000 by 65, from CHF 28'200 paid in. The habit matters more than the amount, and the amount can grow later as your income does.
Why doing nothing is not free: inflation
Leaving money in a savings account feels safe, but it has a quiet cost. Prices rise over time, so the same francs buy less each year. If prices rise by just 1% a year, CHF 10'000 left in cash for 30 years buys only about what CHF 7'400 buys today. At 2% a year, it is closer to CHF 5'500.
Over long periods, a broadly diversified stock portfolio has historically grown faster than both inflation and savings accounts. That growth is not smooth: there are years with losses, sometimes large ones. Investing trades short-term certainty for long-term growth, and that trade only makes sense with money you can leave untouched for many years.
Temporary satisfaction versus long-term freedom
Every franc can be spent once. A new phone, another night out or the latest sneakers give a short burst of satisfaction that fades within weeks. The same money invested at 18 keeps working for almost five decades. This is not about never enjoying your money. It is about making a conscious choice, and seeing what that choice is really worth over time.
Before you start investing
Investing works best on a solid base. Two things come first:
- Pay off expensive debt. Credit card balances, consumer loans or a car lease can cost more in interest than investing is likely to earn.
- Keep an emergency cushion. A few months of expenses in cash means you are never forced to sell investments at a bad moment because something unexpected happens.
Time in the market, not timing the market
Starting early only works if you stay invested. Trying to jump in and out to avoid the bad days usually means missing the best days too, and that is expensive.
A note for parents
Parents can give their children something more valuable than money: an early start and an understanding of how money works.
Financial literacy courses for kids and teens
We are building our own courses on how money and markets work. Interested as a parent? We will let you know when the first course starts.
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