Why is investing essential for building financial freedom? Let's analyze this question in this article 😊
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Introduction: Why is investing essential to building financial freedom?
Today, investing has become almost indispensable.
For a long time, it was enough to work, save a little money in your bank account and wait for retirement.
For a long time, this method made it possible to obtain a comfortable retirement, in some cases even an early retirement.
Unfortunately, this strategy is working less and less.
Every year:
- Inflation gradually reduces the purchasing power of your money.
- Retirement is becoming more uncertain (and later and later)
- Wages rarely keep pace with the rising cost of living.
In other words: Doing nothing is already a financial decision… that is making you poorer.
Investing allows you to make your money work for you in order to build wealth, prepare for the future and gradually gain financial freedom.
In this article, we'll explore why investing is essential, the main benefits of investing, and how to get started easily 😉
Why has investing become essential?
Many people think that investing is only for the rich. This is a big mistake!
In reality, investing is primarily a way to protect one's assets against the ravages of time, regardless of individual income.
The goal isn't necessarily to become a millionaire. The goal is to maintain and increase one's purchasing power over the years.
Without investment, your wealth depends solely on:
- of your salary
- of your savings
- of your future retirement
With investments, you add a new source of wealth creation. 😊
Inflation: your worst enemy if you don't invest
Inflation corresponds to the general increase in prices.
In concrete terms, this means that with 100 CHF today, you can buy more products than with the same 100 CHF in 10 or 20 years.
Let's take a simple example:
You have 100,000 CHF in a bank account.
If you leave it in a bank account, you will only earn bank interest. That is to say, you will earn between 0 and 1% per year.
However, long-term inflation is 1.5-2% per year. In some years, it has reached 5%.
In truth, prices rise more than your savings in a bank account.
In fact, in most cases, inflation increases faster than your salary increases.
Therefore, in a few years, your money will still be 100,000 CHF… But you will buy fewer goods and fewer services. Your assets will have lost some of their real value.
👉 Investing allows us to try to compensate for this loss of purchasing power.
Investing helps you prepare for retirement
For several decades, many workers relied solely on public pensions.
Today, no one can guarantee that pension systems will remain the same in 20 or 30 years.
- Life expectancy is increasing.
- The number of assets is decreasing.
- Public spending is increasing.
For this reason, Building your own wealth becomes an excellent insurance for the future.
The earlier you invest, the more you benefit from compound interest. That is, your money works for you while you work.
Investing allows you to multiply your sources of income.
The majority of people have only one source of income: their salary.
The problem is simple.
If this income disappears, their entire financial situation becomes precarious.
Investing allows you to gradually create additional income.
For example, thanks to:
- to the dividends of the shares
- to the growth of a set of shares
- to real estate rents
- to distributions from certain investment funds
The more your investments distribute profits, the less you depend on your job salary.
Investing brings you closer to financial freedom
For me, that's probably the main reason to invest.
Financial freedom means that your income from your assets covers some or all of your expenses.
You no longer have to work just to pay your bills.
You work because you want to, or you decide to work less.
This freedom is not achieved in a few months. It is built over several years through:
- a strong capacity for saving
- regular investments
- patience
- good diversification.
Does investing involve risks?
Yes.
All investments carry risk. No one can guarantee a return.
Financial markets can fall. Real estate can lose value. A company can go bankrupt.
Therefore, you should only invest money that you do not need in the short term.
The best protection generally remains:
- invest regularly
- diversify your investments
- maintain a long-term vision
How to start investing?
Contrary to popular belief, it is not necessary to be rich.
You can start gradually.
For example :
- invest a small amount each month
- opening a third pillar (for a Swiss resident)
- buy diversified ETFs; ;
- invest in quality stocks
- gradually build up a real estate portfolio according to your means.
The most important thing is to start today. Time is one of the investor's greatest allies.
The main types of investments
In this blog, we will mainly discuss several categories of investments:
- ETFs
- the shares
- the third pillar
- real estate
- SCPIs
- investment funds
- crowdfunding
Each investment has its advantages, risks, and level of complexity.
The goal is to understand how they work before investing.
Conclusion
Investing is not just a way to make money.
It's primarily a way to protect your assets against inflation, prepare for your retirement, and gradually build your financial freedom.
The earlier you start, the more time works in your favor thanks to compound interest.
You don't need to be rich. You don't need to invest thousands of francs.
In truth, You simply need to start, invest regularly, and maintain a long-term vision.
👉 Ultimately, the real question may no longer be: «"Why invest?"»
But rather:
«"How much will it cost me to never invest?"»
FAQ: Why is investing essential to building financial freedom?
Why is investing important?
Investing is important because it allows you to grow your money, protect your purchasing power against inflation, and gradually build wealth. Unlike simply saving in a bank account, an investment can generate income and contribute to achieving financial freedom.
Why shouldn't you leave your money sitting idle in a bank account?
Money in a bank account typically earns little interest, often less than the inflation rate. Over time, your purchasing power decreases because prices rise faster than the return on your savings. Investing allows you to try to offset this loss of value.
What is the best age to start investing?
The best time to start investing is as early as possible. The younger you start investing, the more you benefit from compound interest, which allows your capital to grow over the years. However, it's never too late to start building your wealth.
How much investment is needed to get started?
You don't need to invest thousands of francs to get started. Many solutions allow you to invest from just a few dozen or a few hundred francs per month. Regularity is often more important than the amount invested.
What are the main advantages of the investment?
Investing allows you to protect your assets against inflation, prepare for retirement, create supplemental income, make your money work for you, and gradually build financial freedom. It's also a way to diversify your income streams.
Does investing involve risks?
Yes. All investments carry a risk of capital loss. Financial markets can fluctuate, companies can encounter difficulties, and real estate can lose value. Diversifying your investments and investing for the long term generally helps to reduce these risks.
What are the best investments for a beginner?
Diversified ETFs, the third pillar (in Switzerland), index funds, and certain shares of large companies are often considered accessible options for beginners. Before investing, it's important to understand how each investment works and its level of risk.
Why does inflation encourage investment?
Inflation gradually increases the price of goods and services. If your money stays in a low-interest bank account, it loses its real value over time. Investing allows you to seek returns that can preserve, or even increase, your purchasing power.
How to invest to prepare for retirement
Preparing for retirement involves investing regularly over several years to build up assets. Depending on your profile, this could involve a third pillar pension plan, ETFs, stocks, real estate, or other investments tailored to your goals and investment horizon.
What is financial freedom?
Financial freedom is a situation where the income generated by your assets covers all or part of your expenses. You are then no longer entirely dependent on your salary to live and you gain more freedom in your life choices.
What are the main types of investments?
Among the most popular investments are ETFs, stocks, real estate, investment funds, SCPIs (real estate investment trusts), crowdfunding, and, in Switzerland, the third pillar (pension fund). Each solution has its advantages, risks, and level of complexity.
Why is investing regularly more effective?
Investing regularly helps smooth out fluctuations in the financial markets and avoids investing all your capital at the wrong time. This strategy also promotes discipline and fully benefits from compound interest over the long term.
Is it possible to invest even with a small salary?
Yes. Even with a modest income, it's possible to start investing by saving a small amount each month. The key is to develop a regular investment habit rather than waiting until you have a large sum of money.
How to build financial freedom through investing?
Financial freedom is built gradually by combining a good savings capacity, regular investments, portfolio diversification, and a long-term vision. The earlier you start, the more time becomes your greatest ally thanks to compound interest.
Why is investing essential to building financial freedom?
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Compared to before, I was a person who consumed a lot until the day I realized that my consumption made me sadder and poorer 😑
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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.
To conclude, I think the most important thing is to feel comfortable in your lifestyle 😊
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