Dear Forum,
After days of reading (thank you for all the information!), thinking, calculating, I came up with a strategy for my Finpension 3a account. Time horizon is about 24 years (I’m 41 now) and considering my overall situation I don’t mind taking some significant risk until a few years before retirement, when I feel it should make sense to switch to less volatile investment solutions.
Having a comparatively small experience with investment funds and no experience with index funds, I’m curious: do you think the following allocation makes sense (all with CSIF/UBS funds)? The total amount invested doesn’t justify going crazy about the last bit of tax optimization - it should just make sense as a good portfolio over that time period.
33% MSCI World ex CH Quality
33% MSCI World ex CH Value Weighted
14% MSCI World Small Cap
10% Emerging Markets
6% SMI
3% SPI Extra
(1% cash)
I do have a 2nd pillar, so I kept “just a bit” of excess Swiss equities (Nestlé should come around 1,2%, if I’m calculating right, with Apple/Meta/Microsoft each around double that amount). It looks to me that representing “World” with an equal split of Quality and Value Weighted offers an interesting additional diversification and could provide additional returns compared to “plain MSCI World”. As a cross-check, I verified that (besides about 5x overweighting Switzerland), the geographic diversification of the non-CH part of this portfolio follows ACWI quite closely.
Any comments or advice? Anything you feel I’m overseeing? There is no currency hedging whatsoever… But I know I won’t worry if the portfolio fluctuates - I’m waiting since years that another at the start bad-timed investment slowly recovers and I’m basically never thinking about it…
I’m thankful to anyone who’ll share his impressions and give me additional food for thought!
A nice weekend to everyone!
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Well, its about as diversified as possible so nothing wrong about it. Important is that you sleep well with it. I also did very long and hard thinking about it, but in the end put it all in the CSIF All-world ex CH Quality, to keep it simple.
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Depends how you define significant risk, I think. I’d assume you’re not defining significant risk by being all stocks, right?
I haven’t looked into Large Cap Value (which looks like what the second holding is) but my gut feeling is that it’s probably not a very high-performing segment, and I was never sold on Small Cap or EMs. The Quality fund smashes all of the other funds, and makes a lot of sense to me conceptually, @Julianek’s excellent post here converted me.
My point is, you are diversified, but also concentrated in some Factors/Geographies. Way I see risk is classic: less diversification of any kind (Factor, geography, other)=more risk. I went 99% on the Quality fund because due to the nature of the 3A where the money is locked I decided to take more risk than my liquid holdings which are far more agnostic.
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Thank you for your comments!
Without denying the reasons which made me look for strong diversification in the portfolio I considered in the opening post, I’m now looking deeper into the logic of purposely avoiding the choice of “investing-in-all-is-there-to-invest-into” and trying to also better understand the reasons for (as well as the arguments against) a much stronger focus on World Quality ex-CH, which I’d still combine with Swiss equities. Thank you for pointing me to the post by Julianek - I hadn’t read that one yet and it does bring good arguments for a different view of things and a different “philosophy” of investing altogether (especially if combining 3a with a different portfolio outside of it).
There is an interview where Bogle says that he was the first one offering a Growth index fund and a Value index fund, and he was telling investors to invest in the the growth fund for the accumulation phase of the investment and then switch to the value fund. I’m not completely understanding the reasons for that (and it was loooong ago), but he then realized that people starting trading between the funds instead, and so lost much of the potential of their investment. In a way, combining Value and Quality as I’m planning to do will bring lower risk, but might end up with a long term result which is only marginally better than (or identical to) the World index.
Thinking thinking thinking…!
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My basic assumption is following -:
Whatever I try and however I try - I will not be able to achieve anything better than results of MSCI ACWI IMI over a long term (20 years + ) if I want to have a global portfolio of stocks. I am referring to future years and not past years
Value , Growth , quality , dividend, momentum all are just ways to dissect the market to achieve alpha (beat the market weighted index)
However I believe that just like I cannot pick „best „ stocks, similarly it’s very difficult to pick the right „factor“. Backtesting can help determining the predictors but in long term all roads will lead to same outcome (or worse) because of market efficiencies.
Thus I firmly believe that even if I have built a portfolio which deviates from VT in weights for few countries, it’s mainly for my own personal satisfaction and I have accepted that I might be worse of by doing so but I still chose to do so. Of course I would be happy if I beat VT but it would be mostly because of my luck and not necessarily my vision
As long as you are content with your strategy, go for it. It doesn’t matter if it’s the best or not. It’s YOUR strategy and you will have YOUR results 
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Thank you @Abs_max for sharing your “basic assumption”, which I find very right as a way of looking at things in this field.
I decided to modify a bit the portfolio I was initially choosing, because I realized I didn’t really have a good reason for including MSCI World Small Cap (unless one takes a Small Cap Value fund, which isn’t available at the moment at Finpension, there is really no “Size Factor” to hope for - or in other words to risk on). The Small Cap fund was bringing some additional differentiation, but I didn’t feel it was fitting with the general idea I’d like to go for and actually it was mostly “forgotten” there because it was included in Finpension’s default strategy. I might include a Small Cap Value fund if at some point it becomes available in the Finpension 3a too. This freed up some space to increase the allocation to Swiss stocks, where a simple Small and Mid-Cap tilt seems to be much more promising and effective.
So I can say that the general idea now is:
- “World” with exposure to different “factors” as allowed with the available funds: 35% MSCI Quality, 35% MSCI Value Weighted
- True global exposure: 10% Emerging Markets
- Home bias and slightly reduced exposure to currency risk: 9% SMI, 10% SPI Extra
I like that it’s sort of “personalized” in many ways where I know why I’m taking certain decisions, and it reflects the stand of my knowledge and tastes at the moment. It might “evolve” in case Finpension offers new instruments in the future or in case something unexpected happens and forces me to drastically reduce risk exposure. Now money will regularly go in…
Thank you for your advice!