Salary Increases vs SP500 Benefits - Minimalist and Frugalist

We like to get raises. However, I wanted to look into this issue. Salary Raises vs. SP500 Profits?

Table of Contents

Recommended products

⚠️ This article contains past data that are not guarantees for the future. Investing involves a risk of losing money!

Simulation – Salary Increase VS SP500 Profits

For this article, I simulated two fictional characters. Pierre and Jaquier.

I imagined that 5 years ago, Peter received a salary of $65,000. And he got an annual raise of $2% for 5 years.

On the other hand, Jaquier had $65,000 in the VOO ETF 5 years ago. It is an ETF that replicates the S&P500. That is, the 500 best stocks in the American stock market. And he let his money grow without adding anything.

The question is who made the most money? 🤔

Pierre and the annual salary increase of 2%

For this exercise, I relied on the moneyland percentage calculator¹. I simply put in an initial amount of $65,000 and updated the salary by 2 % each year for 5 years.

Here is the result 😉

Year	Salary	Amount won compared to 65,000 Dollars
1	$66,300	1,300
2	$67,636	2,636
3	$68,978	3,978
4	$70,354	5,354
5	$71,764	6,164

👉 In the end, Pierre earned $19,532 in 5 years.

Jaques and the increase of the SP500

Next, let's analyze how much Jaques earned with the SP500. Note that the initial amount is the same as Pierre's. $65,000!

For this exercise, I relied on annual investment returns between 2019 and 2023. From the official website of the VOO ETF, which replicates the SP500² .

Year	Percentage won or lost
2019	+31.46%
2020	+18.35%
2021	+28.66%
2022	-18.15%
2023	+26.25%
Total	+86.57%

👉 In this case, 5 years later, despite stock market fluctuations, Pierre has earned $56,270!

(⚠️ Past performance is no guarantee for the future!)

Salary Increases VS SP500 Profits – Conclusion

🔍 We conclude that with a salary of $65,000, if we analyze past performance. It was almost 3x more profitable to let an S&P 500 ETF perform than to receive a $21.3T annual raise.

	Money earned in 5 years
Rock (salary increase of 2% per year)	$19,532
Jacques (SP500 performance from 2019 to 2023)	$56,270

In addition, it should not be forgotten that in order to obtain an annual salary increase, the agreement of a boss, a regulation or the company's finances is required.

👉 While to benefit from the performance of an SP500. You need the agreement of … Nobody. You just have to invest and let time pass!👍

Taxes – Salary 65,000 CHF or Fortune 65,000 CHF?

Regarding taxes, is earning money from stock market income more taxable than money earned from a salary? 🤔

In reality, taxation depends on your country of residence as well as the country of origin of your investment.

👉 For example, in my canton of residence. From a tax point of view. The accumulation of stock market capital is less taxable compared to a salary.

Why? According to the tax system in my canton, the money an investor invests in a share is a fortune, while the money received from a salary is income.

	Taxation
Money in a stock or ETF	Fortune
Dividends	Income
Salary	Income

👉 In reality, This difference can translate into thousands of CHF saved in taxes per year!

2 Taxation Examples – Income VS Wealth

Here are 2 examples that I simulated directly from VaudTax. The official tax tool of the canton of Vaud 😉

In both situations, I simulated the same person. That is, a man born in 1990. Living in Nyon, Switzerland. Of Swiss origin. No children.

1 – 65,000 CHF in income (salary)

First, I simulated an annual net salary of CHF 65,000 for an employee at 100%. And I deducted CHF 2,890 in home-work transport.

Result, by simulating the salary of 65,000 CHF and deducting the transport costs linked to the job. This person will pay 10,191 CHF in taxes. 😬

Note that I have not considered other deductions such as health insurance premiums for example. This example focuses only on taxes related to salary!

2 – 65,000 CHF on the stock market

Then I simulated the same person not having a job but having a fortune of 65,000 CHF. By owning 650 shares at 100 CHF in a stock market in Switzerland. That is, 65,000 CHF in a Swiss share in CHF.

Also note that this person does not receive any dividends.

Result, This person will ultimately pay... only 82.50 CHF in taxes.🫡

Income VS Wealth - Result

👉 From a tax perspective, it is probably better to have money in a stock (or ETF) than to receive a salary.

Note that the difference is huge in this case! Indeed, there is more than 10,000 CHF difference in taxes!😮

	Tax payable
Salary 65,000 CHF	10'191 CHF
Action at 65,000 CHF	82.50 CHF

The risks of losing money

Everyone will have their own opinion about the risks between investing in an SP500 or working and receiving salary increases. And I respect everyone's opinion.

On the other hand, in my opinion, I think investing in an ETF is safer than hoping to receive salary increases. For several reasons:

In the last 10 years (2013-2023), an SP500 has increased in value 8 times out of 10. How many bosses give their employees a raise 8 years out of 10?

Between December 2014 and December 2024, an SP500 increased by 248%. How many bosses give increases of 248% in 10 years?

A salary increase depends on the choice of a single boss or institution (or a few clients for an independent). While the financial performance of an SP500 is dependent on 500 shares.

Therefore, in my opinion (not a guarantee!). Regarding the long term probabilities. The probability of making money with an S&P 500 ETF is much higher than a possible salary increase!

Conclusion

▶️ In conclusion, it is twice as advantageous to earn money with an SP500 than with possible salary increases of 2% per year.

1 – Historically, with an average salary. A SP500 is much more profitable than receiving 2% annual increase.

2 – Taxing a stock or ETF without a dividend is more favorable than receiving a salary or a raise.

Plus, in my opinion, there is a greater risk of not getting a raise than there is of making money with the S&P 500.

Therefore, even if I am the first to celebrate a salary increase. We conclude that working hard is not always the best way to earn money. In fact, in this situation, it is even the opposite!

Subscribe for the latest news

You have a frugalist or minimalist project and you want a training? Click ”here”.

My pages

Lastest Post

How does this blog live?

Overall, this blog lives on sharing a frugal and minimalist lifestyle.

For a question of transparency towards the readers. All recommended products are in order to make life cheaper, simpler and to promote the essentials.

Basically, my only income with this blog comes:

Trainings that I realize
Promo codes for the products I use
Donations that readers make in exchange for neutral information.

About me

I decided to create this blog to develop and help readers who are looking for a simpler and more economical life.

Compared to before, I was a person who consumed a lot until the day I realized that my consumption made me sadder and poorer 😑

Now I prefer the minimum of my needs to be happy and achieve my financial freedom.

Without realizingI started to focus on saving and investing to depend on a boss for as little time as possible and to speed up my personal projects.

Are you rather minimalist or frugal Jonny?

I am as minimalist as I am frugalist. However, there are situations where I lean more towards an art of life.

Salary Increases vs SP500 Profits

Minimalism and Frugalism

Your basket (items: 0)