What are ETFs and why it pays to start investing early

In recent years, ETFs have become a hot topic in investing. But what exactly are they, and why do so many investors—young and old—see them as the backbone of their financial strategy? In this article, we’ll explain what ETFs are, why they’re important, how they tie into the FIRE 🔥 movement, and why time often matters more than the amount of money you invest.

💡 What are ETFs

ETF stands for Exchange Traded Fund. These are funds that replicate a market index, such as the S&P 500 in the US or the MSCI World globally. Their key feature: they trade on the stock exchange just like shares.

Instead of betting on a single company, an ETF instantly gives you exposure to hundreds or even thousands of companies. This makes ETFs ideal for small investors, as they allow for broad diversification with even modest amounts of money.

🌍 Why they matter and where they’re popular

ETFs have become essential for three main reasons:

1. Diversification: your money is spread across many companies.
2. Low costs: annual fees are far lower than traditional funds.
3. Transparency: they follow well-known indices, so you always know what you’re buying.

No surprise they’re extremely popular in the US, often used in retirement plans. In Europe and Switzerland, ETF usage has also been growing rapidly, especially thanks to banking apps that make investing accessible to anyone.

🔥 ETFs and FIRE

The FIRE movement (Financial Independence, Retire Early) aims for financial independence and, ideally, early retirement. ETFs are a perfect fit for this philosophy because they are:

• simple to manage
• reinvesting dividends automatically to harness compounding
• delivering long-term returns without constant market timing

Many Americans pursuing FIRE base their portfolios almost entirely on low-cost, globally diversified ETFs.

⏳ The importance of starting early

Time is the investor’s greatest ally. It’s not only about how much you invest, but also when you start.

Example:

• Scenario A: start at 25, investing CHF 200 per month.
• Scenario B: start at 35, investing CHF 400 per month.

Even though Scenario B involves double the contribution, you still end up with less by age 65—because you’ve lost ten years of compounding. The lesson: the earlier, the better.

💸 Accumulating vs Distributing ETFs

A key decision when choosing an ETF is whether it’s accumulating or distributing:

• Acc (Accumulating): dividends from the companies in the index are not paid out to you but are automatically reinvested in the ETF. This accelerates growth thanks to compounding. Best suited for long-term growth when you don’t need regular income.
• Dist (Distributing): dividends are regularly paid out (quarterly, semi-annually, or annually) into your account. This option is useful if you want ongoing income—such as supplementing your salary or during retirement.

In short: Acc = growth, Dist = income.

📱 Where to buy: Neon

In Switzerland, buying ETFs has become straightforward with apps like Neon. From your smartphone, you can select and purchase ETFs with transparent fees, even with small amounts. This lowers the entry barrier significantly and makes diversification easy from day one.

✅ Conclusion

ETFs are a powerful and accessible tool for anyone who wants to build a solid portfolio without complexity. They’re widespread globally, essential for strategies like FIRE, and their biggest advantage lies in time: starting early beats investing later with larger sums.

Whether you go for Acc or Dist, the key is simply to begin. And today, with solutions like Neon, there’s no excuse to delay.

ℹ️ Disclaimer

This article is for informational purposes only and does not constitute financial advice.