Investing in ETFs instead of cigarettes: Turning quitting smoking into financial wealth creation
Building Wealth by Quitting Smoking: Invest in an ETF
Today marks World No Tobacco Day, prompting a financial consideration: If you invest the money saved by quitting smoking wisely in an Exchange-Traded Fund (ETF), you could amass a substantial fortune within a few decades.
A model calculation by the comparison portal Verivox reveals that, over a 30-year period, an individual who invests the money previously spent on cigarettes could accumulate approximately half a million euros by opting for an ETF. While this requires patience and persistence, the rewards can be surprisingly high.
In Germany, a pack of the most commonly consumed cigarettes currently costs €8.70. A smoker who consumes a pack daily would spend around €265 monthly or €37,600 over ten years. Over a period of 30 years, this investment in cigarettes amounts to over €169,000. Assuming an average annual increase in the cost of cigarettes of 3.7%, Verivox projects this figure to grow even higher.
By contrast, if an individual quits smoking and invests the saved money in an ETF savings plan tied to the global MSCI World stock market index, they could amass a portfolio worth €502,712 after 30 years, provided the MSCI World averages a net annual return of about 7.5%. Savers would increase their savings by 3.7% each year, mirroring the annual increase in cigarette prices, and allow the ETF to automatically reinvest returns.
The appeal of an accumulating ETF lies in the growing significance of compounding over time. After ten years, the portfolio value reaches around €54,000, with nearly 70% of this sum coming from the saver's contributions and the remaining 30% from returns. After 30 years, the portfolio value swells to around €503,000, with just over one-third of the total coming from the saver's contributions, and the rest from returns and the power of compounding.
When selling shares, it's essential to remember that only approximately 75% of the fund's value can be withdrawn due to tax obligations. However, the remaining sum of €441,000 still presents a significant amount.
It's crucial to acknowledge that this model calculation merely illustrates the potential benefits of compounding interest over many years. Market fluctuations, downturns, and individual years with lower returns must be expected when investing. For long-term success, investors should be prepared to hold onto their investments for an extended period.
Additional Information:Investing in an ETF instead of spending on cigarettes over a 30-year period can result in substantial wealth growth through compounded returns. The exact figure for this model calculation can be found on Verivox's own publications or financial education materials.
- Utilizing the savings from quitting smoking, one could engage in a vocational training program focused on personal-finance and investing, potentially leading to a more financially secure future.
- For the active community, a policy could be implemented that diverts funds previously spent on vocational training for health-and-wellness programs, such as gym memberships and stress-management classes.
- By eschewing the purchase of cigarettes and instead investing in a diversified Exchange-Traded Fund (ETF), one actively contributes to scientific advancements in health and vocational training sectors through increased funding.
